Most people have no idea about how currency movements affect their lives. You read stories about devaluation and how the US Dollar has moved up or down 20 cents against the Yen but it all seems like meaningless noise. Crisis come and go and we read stories about central bankers doing things like “Quantative Easing”, but what does all this mean – is is all stuff we should happily ignore?
Not so… the value of the Euro against the US Dollar has an enormous impact on you livelihood over the long term, and many factors can make its value go up or down.
The first thing to notice today is that he Euro is much weaker today than 10 years ago. Then one Euro was equal to 1.7 US Dollars. Today 1 Euro is worth 1.17 US Dollars or in other words it has been devalued by 30%. This means that Finnish exporters to the USA will have an extra 30% advantage to sell to Americans. The Central Bank had plenty to do with this by ruthlessly expanding the supply of money and seeing interest rtes close to zero with “Quantitive Easing”, which is just a fancy word for buying huge amounts of bonds denominated in Euros (€2.4 trillion) to keep interest rates low. Now we can thank the European Central Bank for huge losses when they try to sell off these bonds as interest rates rise…
If you look at the graph you will see that the Euro has been slowly but surely being devalued this last 10 years. People do not talk about devaluation any more, which was a sin because devaluations were often associated with national economies that were badly managed!
Now we talk about the competitiveness of Europe when we have today’s evaluation!
A weak Euro is good for weak countries because low interest rates and a weak Euro help them sell more abroad. You can now understand that a weak Euro is also excellent business for the Germans. They get to enjoy this weakness even when their economy is doing just fine. If they now still had the Deutsche Mark it would be going through the roof against the US Dollar!