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Dollar's Fall is Felt Around the Globe |
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Contributed by J. R. Ransom
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 Weaker and Weaker
The sharp decline of the U.S. dollar since 2000 is affecting a broad
swath of the world's population, with its drop on global markets being
blamed at least in part for misfortunes as diverse as labor strikes in
the Middle East, lost jobs in Europe and the end of an era of
globe-trotting rich Americans.
It marks a shift for Americans in the global economy. In times of
strength, a mightier dollar allowed Americans to feed their insatiable
appetite for foreign goods at cheap prices while providing Yankees
abroad with virtually unrivaled economic clout. But now, as the United
States struggles to fend off a recession, observers say the less lofty
dollar is having both a tangible and intangible diminishing effect.
"The dollar was the dominant force in world economics for 100 years --
we had no competition," said C. Fred Bergsten, an American economist
and director of the Washington-based Peterson Institute for
International Economics. "There was no other economy close to the size
of the United States. But all that is now changing."
The dollar is down more than 40 percent against the euro over the past
seven years, taking a particularly sharp drop last month. Despite a bit
of a rebound in recent weeks, the dollar is still off nearly 12 percent
since Jan. 11, when it hit its peak for 2007.
For now, that drop is allowing the U.S. economy to reap rewards.
American products have become exceedingly competitive, boosting exports
ranging from Caterpillar tractors to Boeing jumbo jets that are now
relative blue-light specials in the global marketplace. Using the same
logic of chasing cheaper local production costs that has driven many
U.S. factories to China, a few iconic European companies, including
Airbus, are set to shift some manufacturing lines to the United States.
But for untold millions worldwide, the weak dollar has emerged as a
troubling dark spot. Take Ngengi Mungai, a Nairobi coffee exporter
trapped between the weaker dollar and the rapidly appreciating Kenyan
shilling -- which gained as much as 12 percent against the dollar this
year amid an export-driven economic surge across much of Africa. His
coffee sales overseas, as with the bulk of global commodities, are
priced in weaker dollars. But he must then convert them into stronger
shillings to cover his local costs for local labor, materials, even the
clothes on his back. It has cut sharply into his annual income.
"Basically," Mungai said, "it's bad."
 Stronger & Stronger
It has left many wondering whether the dollar has lost its bling for
good. Even rapper Jay-Z dissed the dollar in his recent video, "Blue
Magic." In scenes celebrating the excess of wealth in Manhattan's
shimmering glass canyons, the cameras cut repeatedly not to images of
$100 bills -- but of crisp, 500 euro notes.
Though still the primary choice for global reserves and commodities,
some countries have begun to diversify their dollar holdings, while a
nascent push is afoot to re-price some commodities in currencies other
than the dollar. In May, Kuwait dropped its currency peg to the dollar
and other oil-rich Gulf states have threatened to follow. Perhaps most
telling: In recent months, the euro surpassed the dollar as the
currency with the largest global circulation.
In very real terms, it has forced Americans to rethink their lust for
foreign goods. Sales of luxury, British-made Jaguars and Land Rovers,
for instance, are declining in the United States because of the weak
dollar, while fewer North American tourists -- a 10 percent drop in the
third quarter of 2007 compared with the same period last year --
treated themselves to trips to England.
The chink in the dollar's armor has dealt a blow to American pride --
at least to the kind of pride that comes with buying power.
Nowhere is that more visible than with Americans overseas. "It's
changed our lifestyle," said Lauren Amlani, 48, who moved to Paris from
California with her husband and young son in March 2006. "A meal with
pizza and drinks for the three of us comes to over $75. That's
ridiculous!"
Amlani's husband, Aslam, a project manager at Disneyland Paris, is paid
in dollars. To compensate for the plunge of the dollar against the
euro, the Amlanis are buying clothes and electronics in the United
States and hauling them back to Paris.
With the exception of November, when the dollar dropped sharply after
bearish remarks by Chinese officials, the fall has been gradual. It is
unclear what will happen in the future. The dollar has fallen because
of a combination of fears over the U.S. economy, including the subprime
mortgage crisis that may worsen.
Although considered unlikely, analysts say a more rapid decline could
prove disastrous. A global run on the dollar would force the Federal
Reserve to hike interest rates to prop up the U.S. currency just as
lower interest rates may be needed to stimulate the domestic economy.
Impact grows
Already, however, the impact of the weaker dollar is growing.
Rolls-Royce has proposed moving some operations from Liverpool to its
factory in Mount Vernon, Ohio. Airbus has said it will shift more of
its production to the United States, home turf of rival Boeing, to
offset the cost of the stronger euro. As the dollar has weakened over
the past seven years, Airbus has opened assembly lines and other
operations in Wichita and Mobile, Ala.; as well as in Moscow and
Beijing.
"Every time the euro increases by 10 cents towards the dollar we lose
$1 billion in our operations," said an Airbus official at the company's
headquarters in Toulouse, France. "Aircraft are sold in U.S. dollars,
but most of our production costs are paid in euros."
Losses in Europe have been blunted, however, because fewer euros now
buy more raw materials that continue to be priced in dollars. In
addition, the British pound has depreciated recently over investor
fears that England's real estate market may be vulnerable to the same
factors that caused the subprime mortgage crisis in the United States.
Many nations that have pegged their currencies to the dollar have
become boxed in by the Fed's moves to lower interest rates. While that
may be wise for policymakers in the United States, where the fear is
slipping into recession, it is exactly the wrong medicine for red-hot
economies such as those in the Persian Gulf that are in far greater
risk of overheating from a massive, oil-fueled economic expansion.
The dramatic surge in oil revenue along with the weakening dollar has
sparked a rise in inflation in the Gulf states -- hurting most those
who have the least. In recent months, it has wiped out much of the
gains from years of hard labor for the thousands of South Asian workers
who moved to Dubai for a piece of its multibillion-dollar construction
boom. With employers slow to raise salaries as low as $109 a month,
workers' savings have diminished in buying power as costs have jumped
for vegetables, cooking gas and other essentials. This has triggered
wage strikes and a rock-throwing protest this fall that set back
construction of the 150-story Burj Dubai, planned to be the world's
tallest building.
"We don't have a single penny," said Ram Chandra, a 33-year-old mason
who moved to the United Arab Emirates from India five years ago to seek
his fortune in a sand-blown and crowded construction camp on the
fringes of the desert. Back home in India, where the dollar has fallen
14 percent against the rupee in the past 18 months, the remittances he
has sent to his family have steadily lost value.
Rallying point for
anti-Americanism
The declining dollar's role in fueling inflation has become a
pi¿ata for barbs across the Muslim world, where
furious residents and leaders, including Iran's President Mahmoud
Ahmadinejad, have sought to turn the weaker greenback into a new
rallying point for anti-Americanism. "They get our oil and give us a
worthless piece of paper," Ahmadinejad told reporters after the OPEC
summit in the Saudi capital of Riyadh last month.
Some countries with strict controls over their currencies have managed
to share in the U.S. windfall from the dollar's drop. Vietnam, for
instance, where the tightly controlled currency has stayed relatively
constant against the dollar, is enjoying an influx of investors fleeing
nearby Thailand -- where the baht's sharp rise against the dollar has
made doing business there far less attractive.
In China, where the currency still trades on a narrow,
government-controlled band linked to the dollar, authorities have
resisted global pressure to allow its currency to appreciate faster.
The Chinese currency has gained about 11 percent against the dollar
since 2005. But by keeping the currency relatively weak, Chinese
companies have managed to ride the weak-dollar export boom -- making
their products even cheaper in countries where the greenback has
sharply dropped.
But now, some in China are turning their noses up at the dollar. Lin
Jing, a sales manager at Shanghai Shuangyuan Import & Export
Co., which exports garlic oil, said the company has begun to demand
euros from its overseas customers instead of dollars. "The use of euros
enables us to shy away from losses caused by the conversion between the
[Chinese currency] and the weakened dollar," he said.
Correspondents Kevin Sullivan in London, Stephanie McCrummen in
Nairobi, Ellen Knickmeyer in Cairo, Faiza Saleh Ambah in Jiddah, and
special correspondents Corinne Gavard in Paris and Wu Meng in Shanghai
contributed to this report.
Visit: Washington Post
Dollar Photo: freefoto.com. |
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