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The Dollar Tumbles

By Timothy J. Gibbons
Published by Florida Times-Union on September 30, 2007.

It's the type of conversation you have to expect to have when you do business around the world, when you're trading another country's currency for the dollar, a form of money that has lost its long-held luster.

"Hold on, I'm watching the dollar, " Jacksonville businessman Manish Kothari recalls hearing one of his dealers say, only partially joking. "I'll send you payment when it favors me."

With Kothari's company - Prism Lighting - importing its inflatable light system from India and selling it in 22 countries, fluctuations in currency values have a direct impact on the bottom line.

"It has hurt sometimes, " Kothari said. "The euro got more expensive. The Indian rupee went up, so the savings we were having, we lost."

And such drops are leading to more widespread effects. The dollar has been steadily falling for months, making for long days for currency traders and hedge-fund managers. As the U.S. currency hits record lows against the euro and the Canadian dollar, the impact will begin to creep from Wall Street to Main Street, affecting real estate agents, travelers, importers and exporters and consumers in general.

There's as many in-depth explanations for the drop in the dollar's value as there are economists who study the issue, but the various inputs all boil down to one major output: Investors are less optimistic about the future state of the U.S. economy, leading them to feel that other currencies are more secure. The burst of the housing bubble, the still large trade deficit, funding of the wars in Iraq and Afghanistan, low U.S. saving rates - they all factor into a feeling that a stack of euros is more valuable than a stack of dollars.

The cut in interest rates recently announced by the Federal Reserve, for example, cheered financial markets here but led the dollar to slide even further. "Many people read into the Fed reducing interest rates half a point that recession is more likely, " said Mina Baliamoune-Lutz, an economist at the University of North Florida who studies foreign trade. "That leads to speculation."

But what does it mean to consumers?

Broadly speaking, the falling dollar makes foreign goods more expensive for Americans and makes American goods cheaper for buyers in other countries.

Here's an example: Say you want to buy a European widget, which costs 10 euros on the streets of Paris. In 2002, in order to get 10 euros to send to Monsieur Widget Fabricant, you'd have to give your bank $10 (because the two currencies were worth about the same amount). Now, you'd have to fork over around $14, making the real cost of the widget to you higher.

A French widget collector, meanwhile, needs to spend only 7 euros to buy the $10 bill he'd have to send an American widget manufacturer, rather than 10 euros he would have spent five years ago, dropping the real cost of the American product.

That can be a boon to Americans looking to sell overseas.

"Every company that's a manufacturer on the First Coast should be looking to export at this point, " said Allen Weber, vice president of the Jacksonville-based Global Trade Institute, a consultant to those interested in foreign trade. "Europeans have been complaining that they're not going to be able to sell as much, but it makes American goods that much more competitive."

Indeed, exporters nationwide have jumped on the opportunity: In June - the latest data available - exports grew faster than imports, jumping by $3.6 billion and narrowing the trade deficit by $200 million.

And the falling dollar helps businesses like Manormor Sotheby's International Real Estate, a Jacksonville-based company that markets property to international clients. Although Jacksonville hasn't yet seen an influx, owner Beverly Brandenburger said, Orlando has.

"The British particularly are wanting to put their pounds over here, " she said. "They're acquiring properties all over Florida. We're hearing rumbling that St. Augustine is becoming a favorite spot."

But Americans haven't yet seen the flip side of that equation. Although many foreign currencies have gotten more expensive, the billions of dollars worth of imports filling our store shelves haven't seen a corresponding jump in prices.

The key reason for that: The currency of China, America's second-largest source of foreign goods (behind Canada), has not fluctuated as much, due in part to governmental policies designed to keep the two currencies near each other. That means that even though the value of the China's yuan has jumped 4.8 percent in the past year, that's nothing compared to the jump in the euro.

It also helps that large U.S. importers have dollar-denominated contracts with foreign suppliers, shielding the U.S. companies from the dollar's drop for the moment.

That, of course, doesn't help individuals looking to buy foreign goods, particularly vacationers who have no choice.

"When Americans go to Europe, they see it, " said Baliamoune-Lutz, who visited Greece and Italy over the summer. "Everyone was complaining about the value of the dollar, " she said, particularly with the exchange rate dropping every day. "By the end of summer, it really got worse."

It's not expected to get better anytime soon. Economists across the board are looking for the value to keep dropping, with Standard & Poor economists recently forecasting that the decline would continue to the end of 2009.

For many businesses, the only answer is to batten down the hatches and ride the currency storms out.

"It's not something I can control, " said Kothari, the international businessman. "I just make sure my products are better and I get my payment on time."

timothy.gibbons@jacksonville.com (904) 359-4103



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This is a showcase of the work done by Timothy J. Gibbons during a journalism career now stretching back more than a decade.

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