Back a few decades ago in the 1960s and 1970s, in the prehistoric times when the Finns had their own currency, there was a huge amount of criticism from economists that Finland is mismanaging its economy with the result that the Finnish Mark is devalued once again.
The comments came from leading politicians and the head of the Bank of Finland, the central bank here, one of whom later became President of the country! Economists were around then but their number was smaller than today, and the few that carried weight were part of that political and commercial elite that also expressed criticism – but still, one devaluation followed another on a regular basis.
Looking back at the media and biographies of these people one can be surprised that they were all talking with one voice about the dangers and damage to the economy caused by devaluations, and yet these were the same people who made all the big economic decisions, directly or indirectly! Back then, the economy was not that open – Finland lived off exporting basic forestry and metal products to Russia and a few other nearby countries. At that time most of the manufacturing capacity was in Finland with very little capacity outside the country, unlike today.
The elite talked about the necessity for export competitiveness – without devaluation of the FinnMark, according to their opinion, it was impossible to sell. There was very little discussion about the impact on ordinary people except in very general comments about increased prices for imports…
Devaluations are simply a price adjustment mechanism that impacts the whole population from day one and thereafter. Imported goods get more expensive, while exports become cheaper to sell. Other things are normally associated with devaluations like higher interest rates, and higher taxes to cover increasing government deficits.
A few big exporters retained high profits thereafter, but the rest of the population were clearly worse off… the result was not in balance, or as economists now say, the impact of a devaluation is not symmetrical, “asymmetrical”, something that was never mentioned because of the political impact of such news. Naturally, one can argue that exports were the life blood of Finland, but economic decisions were still concentrated with the few who profited from that more centralized economy at the expense of the rest of the population.
Now things are very different, and we are in the Eurozone with our common currency, the Euro, where we sell 40% of exports, and 56% to the whole of the EU. The Euro has brought lower interest rates and a big single currency market where exporters do not have to waste time and money on managing foreign exchange rates risks. The same exporters have an efficient market where they can exchange US Dollars and other large currencies against the Euro if they are sell goods outside the Eurozone. This means that there are big cost savings, unlike the old days when you were depending on a few banks in Helsinki than run a very profitable business buying and selling currencies against the Finnmark at huge spreads.
Sweden took a different view about the Euro and has retained its own currency which the banks have lobbied for – why give up a good business, without lobbying hard? The result for the Swedes is a very volatile price market when trading across borders or when travelling abroad. The Swedish Crown is a tiny market that is subject to huge swings. The population appears to accept this but they pay a high price. The Swedish Crown has been devalued hugely and this appears to be something that suits the Central Bank, exporters and banks alike, but the population in general pays the price. The extent of the changes in value are huge since it has fallen from around SEK 8,5 to SEK 12 for €1 – that is a 40% fall in value – see the graph below that tracks these moves!
In other words, Swedes pay roughly 40% more when travelling or buying from anywhere outside Sweden.
The Euro has also lost some 20% value against the USD Dollar, but we have a huge market of 330 million people inside the Eurozone where we can trade amongst themselves without worrying about exchange risks.
Talk about leaving the Eurozone, proposed by some leading folk in the True Finns, is like cutting your nose off to spite your face. Something similar to the talk about the advantages of leaving the EU by the British politicians!
The Righteous Brothers were quite right in their song from 1964 that when you have a big devaluation or a Brexit, then everyone in the population will see a big increase in lost money or as they say “Now it’s gone, gone, gone, whoa-oh”
Photo: You’ve Lost That Lovin’ Feelin'” is a song by The Righteous Brothers, 1964
