The Decline and Fall of the U.S. Dollar
The U.S. dollar hit record lows today due to concerns that China might shift its foreign exchange holdings elsewhere.
I’d been concerned before when I first heard that the Canadian dollar was ahead of our own, but today, The Guardian reported that the American dollar had reached a 26-year low against the British pound:
By 10:30 a.m., one pound was worth $2.1053. The dollar, which has been weakening for several weeks, also hit a new all-time low against the euro of $1.4703.
Analysts said today’s falls had been sparked by comments made by Cheng Siwei, vice chairman of China’s National People’s Congress. He told a Beijing conference on Tuesday that China would “favour stronger currencies over weaker ones, and readjust accordingly”.
A vice director of China’s central bank, Xu Jian, was also quoted as telling the conference that the dollar was “losing its status as the world currency”.
As China’s investments and economy continue to outperform, the world seems to be watching its every move, so this certainly bears bad tidings for the U.S. And China’s not the only country with fears regarding the dollar’s stability as the sub-prime situation continues to unravel our economy.
Saudi Arabia, South Korea, Venezuela, Sudan, Iran and Russia are all looking to shift their investments away from U.S. currency. The Bank of Korea is expected to sell off $1 billion in U.S. bonds in the near term, while Iran recently requested that Japanese shipments be paid in yen instead. Russia and Sudan are openly discussing their own plans to convert their dollar holdings to euros.
Even supermodel Gisele Bündchen has requested payment for her modeling work in euros rather than U.S. dollars:
“Contracts starting now are more attractive in euros, because we don’t know what will happen to the dollar,” Patricia Bündchen, the model’s twin sister and manager in Brazil, said in September from Sao Paulo. She declined to discuss details of the arrangements last week.
Beneath her primped and polished exterior, Bündchen just might be a savvy investor. After all, beyond being one of the world’s highest-paid supermodels, earning $33 million in 2006, she does have her own index at Stockpickr.com.
Are your investments dollar-dependent, or have you diversified to include international holdings? Have recent events changed your investment strategy?
7 Countries Considering Abandoning the US Dollar (and what it means)
Article comments
I still question whether or not a weaker US Dollar is all that bad. Since all of our products are essentially on sale to the rest of the world, our trade deficit is falling through the floor.
invest in US companies with large foreign exposure and you won’t have to worry about it. second, someone has to buy the US currency vehicles, which in the end can be used to buy only US goods and services. continue to devalue the dollar US exports are more favorable (we already see how quickly the shift is working with the decrease in foreign trade balance this month), which has a negative impact on those foreign countries investments. The British Pound is also over valued, while the Yuan is seriously undervalued.
the 6 countries may diversify their currency holdings, but they aren’t stupid to think that the markets won’t swing back towards the dollar. The US is too huge of a consumer market for them to drop the US dollar outright, and talk of doing so is rather silly.
Aha! The plot thickens…..
You know, maybe supermodels really *are* the center of the universe…
It’s starting to look like I’m obsessed with Gisele, but I just had to follow-up when I read this. Her sister/manager who was quoted as saying the model is no longer accepting payments in USD has denied ever making the statement [SF Gate].
I’ve been diversifying overseas more and more. Doesn’t seem to be helping though as the Chinese markets have been getting clobbered this week too. In the long term (and isn’t it all about the long term) this has to be the right thing to do, doesn’t it?
I don’t see the China thing as much of a threat. We are their largest export partner, buying more of their goods than anyone else. If they force our dollar down farther, then we won’t have the money to buy their goods. They need us to have a strong currency to help keep their economy running.
Flexo,
I’d seen that quote as well but left it out for brevity’s sake. Plus, I tend to discount what her agent says versus her manager.
You’re right about missing the investment boat, but I will confess that I’m concerned the dollar has a good bit further to fall, so I am beginning to look abroad as well.
The Gisele contract story is more amusement than any widescale indicator, but I was interested in the fact that it’s been right alongside all the other dollar news I’ve read today. Perhaps it’s the bit of fluff the media needs to buoy us up from the depressing reality of what’s happening to our economy.
About Gisele’s contracts, it’s interesting that the article on Bloomberg itself contained an additional quotation not included in the Seattle Times version of the Bloomberg article (which you linked to). Here’s the extra quote:
Sounds like standard contract terms to me… though there were some harsh words from others from her camp about the dollar.
Nevertheless, Gisele has no reason to stop accepting payments in USD. She can easily convert her USD receipts into foreign currency if she so desires and/or adjust her prices to correct for Fx uncertainty. Those quoted in the article seem to be pretty confident about their forecasts for the dollar’s value, so adjusting fees to compensate should be straightforward.
The dollar’s declining and it’s a good idea to hedge against further decline. Refusing to accept the dollar is not a good example of hedging because the other options are available (unless there’s something about her contract preventing her from trading or raising her fees, but I can’t think of what that would be).
Those of us starting to think about this now — and the media — may have already missed the boat, but there might be time to act before other countries unload their major US investments.