2002-01-30 Marcus,
Read my comments interspersed: John ----- Original Message ----- From: "Ma Be" <[EMAIL PROTECTED]> To: "U.S. Metric Association" <[EMAIL PROTECTED]> Sent: Tuesday, 2002-01-29 17:44 Subject: [USMA:17743] Re: euro is falling again > This is an excellent topic for discussion. Thanks, John, for bringing it up. I'll add my 2-cents worth here. > > Actually, this reminds me of a couple of class meetings I had when I was still taking my MBA at McGill. One took place at my macroeconomics class, and the other was in my International Business one. The conclusions (or consensus) I remember we have reached was that a strong currency is ALWAYS the best approach *in the long run*! Regardless of whether your a net importer or a net exporter. I'm sure that all depends on how big or small your economy is. When you are speaking of the individual European nations each using their own currency I can see that happening. If a small economy like Spain has a weak currency for a long time, I can see the effects of this happening. Because a country like Spain can't produce all its needs from its limited resources and must buy them from others. And with a weak currency it becomes harder to buy those resources. Thus the price of them increases in Spain and any products made from them; a domino effect. Eventually, the economy becomes weak and the people poor. But, if a country like Spain becomes part of a greater group such as the European Union and operates within open borders, no tarifs between countries, no currency fluctuations, no costs to exchange currencies, and price stability within the Union, the value of the common currency outside the Union becomes less dramatic. With the "Collective Union" exporting more then it imports would bring in enough cash to offset any inflation brought by more expensive imports. Or, with increased competition of a global economy, one can find alternative cheaper resources, thus negating the imported inflation. Also, in checking the currency charts today, I noticed a majority of the currencies listed had also fallen in value relative to the dollar, thus all falling together, there is relative stability when compared to each other. This reduces the negative effects of imported inflation as well. And, if you are speaking in the long term, who is to say where the Euro or the dollar will be in the next few years? > > Currency devaluation is a perverse illusion! The benefits accruing to the exporter from a weak currency eventually get superseded by 'imported inflation', potential lack of stability of your currency, potential lack of sustainability of your standard of living, lack of power/influence, among other factors. Canada is undergoing exactly that kind of process now, since our currency has been hammered by the US dollar for over 20 years now! Interesting about Canada. Despite a weakness of the Canadian Dollar, one does not notice a decrease in the Canadian standard of living. When I go to Canada, I see very little of what I would consider poverty, and Canadians I speak will eventually admit, they don't have the poverty or ghettos seen in US cities. But, what I am told is that Canadians can no longer afford to buy American goods or vacations and have found alternate countries to buy goods from and places to spend their vacations. So, who is really hurting? > > Therefore, I'd like to cast my vote to the valuation camp as a long run sustainable target/objective. I wouldn't want my country to have it any other way actually! What we may lose in initial competitiveness we could recover by an increase in productivity, which could result in keeping our products' prices attractive! That concept of a strong currency may have been true in the old days of small nation-states, but may no longer apply in the new era of mergers of nations into economic unions or trade blocks. When the decline of the Euro verses the Dollar proves to increase growth in Europe and a long term recession in the US, then we will know the old consensus no longer applies. > > Marcus
