The Strong Dollar and the Risk of Money Exchange
During my MBA days, a few years ago, I studied how money exchange global strategies can affect the enconomy of developing countries. In particular, how event exports of developing countries with a soft currency, such as African countries, did not make enough to obtain any earnings from their exports at all due to exchange issues.
Today's strong dollar calls for Latin American countries to take pro-active action against inflation and optimizing earnings from their GDP. Most importantly, there are few options, which in my macroeconomic perspective could help. For instance, South American countries should drive their economic earnings from exports not just from major products or commodities such as oil (in declining price) or coal (with increasing demand), but also leverage their GDP with products that are easy to produce or manufacture. For instance, he agriculture of these countries could easily expand their exports of products such as banana and corn, whose demand is likely to be inelastic for the USA.
Likewise, domestically these countries could focus on their economies of scale leading to cost-effectiveness.
A reconciliation for the domestic currencies is critical for the entire Latin American countries; and therefore, investing in dollars is useful as a balancing momentum strategy. However, protectionist strategies may not work in the long term due to the required leverage value of global macroeconomics and international trading acts.
In summary, Latin American countries, such as those in the former Gran Colombia and the Andes, have the chance to leverage the strong dollar with the following long-term strategies:
1. Inflating their GDP by expanding the growth of natural products, such as corn and banana, whose demand is rather inelastic and clearly increasing.
2. Partner with technology manufacturers to leverage the cost of imports by producing, manufacturing and producing locally, and by investing in new technologies such as solar panels and other thermo- and photo-voltatic technologies, electric vehicles, and cell phones, among others.
3. Adopt other historic measures to prevent and control inflation.
4. Leverage portfolios, which include primarily Euro investments.
5. Work consistently towards an improved organization of the domestic markets and add value in components such as the real-estate markets and experiencing the country via the touristic industry.
The current devaluation of the Chinese and Japanese currencies has recently affected the international stock markets, but since the strong dollar is mostly due to its reestablishment of the de facto international currency over the euro, as a direct consequence of the Greek crisis and possible exit, and not by a significant increase in the American Nominal or Real GDPs. This is why Americans may not be exempt to some inflation effect in spite of the oil prices. The USA in return is benefiting from his exports, and has even agreed to small oil exports to Mexico. However, it is obvious that the Fisher effect will further impact and be more visible in countries where currencies tend to be more volatile, either by circumstances or by historic fiscal practices, independently from the country's economic development.
Useful Links
http://ageconsearch.umn.edu/bitstream/19157/1/sp05ch10.pdf
N.B. Numbers may not be current (from source link above).
http://www.investmentreview.com/analysis-research/the-fisher-effect-under-deflationary-expectations-5119
During my MBA days, a few years ago, I studied how money exchange global strategies can affect the enconomy of developing countries. In particular, how event exports of developing countries with a soft currency, such as African countries, did not make enough to obtain any earnings from their exports at all due to exchange issues.
Today's strong dollar calls for Latin American countries to take pro-active action against inflation and optimizing earnings from their GDP. Most importantly, there are few options, which in my macroeconomic perspective could help. For instance, South American countries should drive their economic earnings from exports not just from major products or commodities such as oil (in declining price) or coal (with increasing demand), but also leverage their GDP with products that are easy to produce or manufacture. For instance, he agriculture of these countries could easily expand their exports of products such as banana and corn, whose demand is likely to be inelastic for the USA.
Likewise, domestically these countries could focus on their economies of scale leading to cost-effectiveness.
A reconciliation for the domestic currencies is critical for the entire Latin American countries; and therefore, investing in dollars is useful as a balancing momentum strategy. However, protectionist strategies may not work in the long term due to the required leverage value of global macroeconomics and international trading acts.
In summary, Latin American countries, such as those in the former Gran Colombia and the Andes, have the chance to leverage the strong dollar with the following long-term strategies:
1. Inflating their GDP by expanding the growth of natural products, such as corn and banana, whose demand is rather inelastic and clearly increasing.
2. Partner with technology manufacturers to leverage the cost of imports by producing, manufacturing and producing locally, and by investing in new technologies such as solar panels and other thermo- and photo-voltatic technologies, electric vehicles, and cell phones, among others.
3. Adopt other historic measures to prevent and control inflation.
4. Leverage portfolios, which include primarily Euro investments.
5. Work consistently towards an improved organization of the domestic markets and add value in components such as the real-estate markets and experiencing the country via the touristic industry.
The current devaluation of the Chinese and Japanese currencies has recently affected the international stock markets, but since the strong dollar is mostly due to its reestablishment of the de facto international currency over the euro, as a direct consequence of the Greek crisis and possible exit, and not by a significant increase in the American Nominal or Real GDPs. This is why Americans may not be exempt to some inflation effect in spite of the oil prices. The USA in return is benefiting from his exports, and has even agreed to small oil exports to Mexico. However, it is obvious that the Fisher effect will further impact and be more visible in countries where currencies tend to be more volatile, either by circumstances or by historic fiscal practices, independently from the country's economic development.
Useful Links
http://ageconsearch.umn.edu/bitstream/19157/1/sp05ch10.pdf
N.B. Numbers may not be current (from source link above).
http://www.investmentreview.com/analysis-research/the-fisher-effect-under-deflationary-expectations-5119
