Wednesday, April 18, 2007

Watch out for the US dollar

[Nairobi, Kenya]
ONE THING that businesses in Africa have to be weary about is the state of the US dollar. Why? Because a lot of transactions (tourism, import/export, etc.) are conducted in said currency. There's an old wise saying in business: "Buyer beware." Well, I feel this saying is soon going to take on greater significance as the US dollar continues to lose ground to other major currencies: "Hey, can you pay me in Euros?" :-) What, you think I'm kidding around? Well, take a peek at this.
The dollar hit a 26-year low against the British pound and neared an all-time trough versus the euro on Wednesday as expectations of U.S. rate cuts contrasted with prospects for more monetary tightening in other countries.

The dollar was down across the board, hitting a 22-year low versus the New Zealand dollar on Wednesday and holding near Tuesday's 17-year low against the Australian dollar.

The fall in the dollar was exacerbated by below-forecast U.S. core consumer prices for March released on Tuesday. The U.S. data contrasted sharply with a jump in UK consumer prices that stoked expectations for a rate hike, driving sterling above $2 for the first time since 1992 when Britain was forced to exit the Exchange Rate Mechanism, and then higher still to levels last seen in 1981. {source: Dollar takes pounding, 26-year low}

Signs everywhere
Look at it this way. China and India are 2 economies that are booming due to their exports to the US. This means more US dollars are leaving the US, which also means that more of said currency is held in other countries where it was not originally printed. So now, who do you think has more influence over the US dollar...Americans or outsiders? Okay, here's some more food for thought on why the US dollar is going to the dust bin.
So people cast doubt on the "dollar-devaluation" theory. They found that the root cause behind the sharp rise of US trade deficits was not the greenback's high exchange rate, but the extremely low bank savings rate of Americans who excessively spend future money on current consumption. The comparatively weak demand for US goods in some sectors of the world market is also to blame. {source: RMB no scapegoat for US woes}
Oh, don't forget about that huge national US debt which is now hovering close to $9 Trillion. Yes, I said TRILLION. Furthermore, with more manufacturing jobs moving over to Asia, this means that a lot of good income paying jobs are being lost only to be replaced by low-paying, service-oriented jobs.In closing, my advise to African businesses is to start looking for an alternative currency to replace the US dollar when dealing with foreign transactions. Heck, don't be afraid to ask if you can be paid in Euros, Swiss Francs, or British Pounds. Why should your business suffer just because American politicians have mismanaged the US economy. :-)

Here's hoping to a very profitable future for all businesses throughout Africa.

Related links:

1 comment:

Anonymous said...

max i heard that saddam was about to charge in euros for his oil & this move was going to weakin the us$ even more. may be he kneww what he was doing? the $ was 72cents to the kenyan shilling last year & now it is 68cents. you might be onto sumthing. keep up the graet posts.

G. Mbuga