Most people do not understand how currencies move up and down, and how they affect their lives and this global climate crisis is just starting to make things much worse.
When you look at the Euro against the US Dollar over the last 20 years you will see that the Euro started at around USD 1,20 and got weaker a few years later to USD 0,80, a fall of 34%. From there it got really strong and almost doubled in value (+100%!!!) right up to the financial crisis peaking at USD 1,60. After the financial crisis we have seen a huge fall in its value of almost 30% to USD 1,12.
There can be no question that the EU has seen huge advantages to export its Euro-based goods during the last 12 years and that has been good for companies, but consumers have been paying much more for USD-based imports, the most important of which is fossil-based energy.
However, around 60% to 70% of our trade occurs within the EU so things are not radically unfavourable for us inside the Euro area…
But if you look at Finland’s closest neighbour, you can see that the Swedish Crown has been up and down by similarly large swings from low to highs and lows were of around +25% and -25% respectively! In 2009 it was €1=SEK11.00, and in 2019 it is €1=SEK 10.75 and in between it went as low €1=SEK 8.2… These big swings have helped boost Swedish exports, at a time when wages remained relatively low and when there happened to be large numbers of low cost immigrant workers entering the country. You may recall that Germany has the same story to tell. Although taxpayers saw higher prices, employment opportunities remained strong because their economy was well poised for the upturn in 2018.
How times have changed over the last 2 decades… Then we were used to hearing the warning “Watch out for the D-word” – a saying that our “top economists” used. They meant that devaluations were something to be used as a last resort. It was labelled by them as a failure to control wages and prices. Too much inflation caused exports to splutter and a 20% or 30% devaluation was called for by exporters. All this was nothing more than an administered reduction in the value of our currency ordered by the central bank after top secret negotiations!
Naturally, devaluations administered by the authorities give a country a competitive advantage for exports, but that benefit is generally short-lived if inflation is not reigned in.
Nobody talks about today’s currency movements of the Euro or of the Swedish Crown in the same way. We just listen to carefully crafted fine speeches of our central bankers who talk about the need for low inflation, negative interest rates, banking stability and “Quantitive Easing”. Their pronouncements are seldom questioned, but they are the folks that determine interest rates and currency values. The weakness of the Euro has benefited German, French, Italian, Spanish, Dutch and Nordic exports. Although they did not administer the devaluation, it was never-the-less the result of holding strong and weak economies in the same bag we call the EuroZone.
Devaluations and Revaluations are here to stay and you will not find many top economists actually criticising these men. That is not surprising since most of them work for banks who benefit enormously from central bank funding, and interest rate and currency volatility.
The only person in government who has spoken up against his central bank is Trump because he thinks that everyone else is to blame for the currently strong US Dollar. However, his trade war with China may cause the Chinese to start selling huge amounts of US Government Treasury Bonds. That could force interest rates up and lower the value of the dollar…
But nobody knows what will happen next – we all know that Mr. T. Is unpredictable as are the big currency markets. What you can be sure about is that big movements will continue to happen especially now that there is a real climate crisis on our doorstep and terrible storms, flooding, drought and even more pollution are today’s “normal”. Saving the millions of displaced folks who want to escape storm destruction, flooding, drought, air and water pollution hunger, and the resulting fighting or wars will cost a pretty penny…
Shorter winters and hotter drier summers here in the Nordics are a statistical fact for us all except the far right, the fossil fuel boys, and Mr. Trump.
Photo: Creative Commons Zero – CC0.