Back in 2002, when my wife and I were dating, we went to Vancouver for a romantic weekend of dining and shopping. At that time, the Canadian dollar was worth about 70 U.S. cents. How things have changed.
Today, it was reported that the U.S. dollar had fallen to a 30 year low against the Canadian dollar, reaching one-to-one parity for the first time since 1976.
What was interesting was the rationale behind it... the Fed's interest rate cut. I could see that as an impetus for a short term fluctuation in the currency markets, but this parity didn't come about in the last few days. Over the years since George W. Bush took office, the dollar has gotten progressively weaker on worldwide currency markets.
The British pound, once worth $1.40 U.S. now tops $2.00. The Euro, which I can last recall as being worth about $1.15 U.S. is just slightly over $1.40 U.S. Around the world, the dollar doesn't buy as much as it used to.
Whether this is good or bad, though, is debatable. It raises the price on our imports while lowering the price on our exports. That means that foreign-made goods are more expensive to buy here, while American-made goods become less expensive to buy overseas. For a nation that bleeds out hundreds of billions more in import purchases than export sales, this could be seen as a good thing. A weaker dollar abroad is supposed to help curb our appetite for imports while causing American made goods to sell at a brisker pace in other countries.
On the other hand, it also makes it cheaper for foreign investors to buy up American land and American companies. Remember when it seemed like the Japanese were buying the whole country in the 1980s? Because they'd been investing in the U.S. for a lot longer, the British and Dutch had more extensive holdings in America than the Japanese. Still, the massive buying spree the Japanese went on in the '80s made it feel like they were buying America. It's one of the reasons Styx's salute to Japanese robotic overlords ("Domo arigato, misto roboto") struck such a chord back then.
As American dollars flow out to China for consumer goods and India for outsourced jobs, and as the Bush administration uses its last 16 months in office to further depress U.S. currency worldwide, are we setting ourselves up to see China and India go on buying sprees to rival Japan's spree in the '80s? Are we developing a buy and sell cycle, where we buy foreign goods when the dollar is strong, then sell American real estate and companies when it's weak?
But a less mentioned effect of exchange rates is where tens of billions of tourism dollars go every year. One significance in the Canadian dollar advancing 40% against the U.S. dollar is that a Canadian hotel room that cost $100 a night in 2002 will cost $140 now, maybe more if we factor in inflation. The same increase can be applied to a rental car, meals, tourist attractions, shopping... Popular tourist destinations in Canada have been seeing a downturn in American tourism which is only going to increase as the dollar gets weaker.
On the other hand, all things being equal, Americans won't just stop going on vacations because it's become too expensive to vacation outside the U.S. They'll just do more travel domestically. And with exchange rates being so good from the other side of the fence, it will attract more foreign tourism.
Living in Seattle, which is a tourist destination and producer of various exports from apples to software to jet planes, the declining currency then becomes a trade off. It becomes more expensive to take weekend trips to Vancouver, but we should see a lot more money coming into the region from tourism and exports, helping the local economy.
It's easy to look at the 1:1 parity on the U.S. and Canadian dollars and grumble. It's even easy to blame the Republicans. The last time we hit parity was near the end of 8 years of Republican economic policy.
But the declining dollar is a two-edged sword. It makes it more attractive to keep our dollars at home and makes it more attractive for other nations to spend their money on American goods. Our trade deficit has been more than worrying. It's been alarming as far as some economists are concerned. A declining dollar helps in that arena.
On the other hand, I like to vacation in Canada and sometimes outsource creative work to friends in the arts in Canada. And while the dollar is in decline I'm going to have to do less of that.
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I miss Robson Street... and ordering Bellinis that seemed reasonably priced *before* you'd actually had any alcohol. I miss going to a foreign country without having to save up just for the transportation!
But on the other hand, my Canadian-bought shoes are still comfortable and fashionable, so I'll hang on while we wait for a better exchange rate.
[...] A while back, I wrote about how the U.S. and Canadian dollars hit parity for the first time in nearly 30 years and discussed the effect of a weak dollar on the price of imports. Well, more proof of this has hit the news. The price of Canadian marijuana is going up. [...]