Shalom Life | April 18, 2015

The New Currency War

How the value of currency impacts the economy.

By: Yosef Tastassa

Published: October 15th, 2010 in Business » World

The New Currency War

A country's currency is the country's economic strength – simple as that. Many Canadians are probably proud of the fact that the exchange rates between the Canadian Dollar and the US Dollar were almost 1:1. By 21:15 last evening, the US Dollar (USD) traded for 1.0055 Canadian Dollars (CAD). Only in January 2010, the exchange rate of the USD/CAD was around 1.25 CAD per 1 USD, meaning that the Canadian Dollar got stronger by 20%.

Yes, we are proud. But we have to ask ourselves whether a strong Canadian Dollar is good for Canada, or is it good for the US and other world countries. The answer would probably be: "Good for the US".

For example, as Canadians we find it cheaper to travel in the US because our Dollar is strong and we get more for our money. But when we spend our money in the US we are supporting the American economy and not the local one.

When a Canadian company exports its products to the US markets it receives its revenues in US Dollars. However, a strong Canadian Dollar causes a decrease in the company's revenues and profits in terms of the local currency. Sometimes, when the local currency is too strong, the exporting companies are in a continuous stress and the importing companies enjoy high revenues and profits.

Therefore, a country's strong currency may be a short term pride, but also a long term risk to the delicate balance of its economy.

Stanley Fischer, the Governor of the Bank of Israel, is facing a currency dilemma for the aforementioned reasons. Fischer is trying to cool down the markets and inflation by increasing the Central Bank interest rates and at the same time has already purchased over $40 Billion in order to keep the Shekel artificially low and save the Israeli export.

Ben Bernanke is having hard times in his powerful position. He keeps interest rates to a minimum and by that causes a long term devaluation of the US Dollar. A weak American Dollar should help US exporters with their businesses and make it hard for importing companies, a situation that is supposed to decrease the scary US international debt.

The Australian Dollar (AUD) went through a remarkable "come-back". Trading at only 65 US cents at the beginning of 2009, the Australian Dollar kept climbing and climbing and early last evening traded at 99 US Cent, an up-side of over 52 percent, an incredible figure in a period of less than two years.

Can all this be considered a currency war? Yes it can. Paradoxically, all countries want their currency to be weak in order to strengthen the local economy during a global crisis. China does it artificially by keeping the Chinese Yuan low for years. Jean Claude Trichet, the Governor of the European Central Bank is barely managing to maneuver the continent's economy due to problems in many European states, high unemployment rates and a strong Euro which, as we all understand, is bad for Europe.

The Governor of the Bank of Canada, Mark Carney, has increased the Central Bank interest rate by 0.25 per cent to a level of 1% per annum. Carney’s monetary policy is to keep the economy as stable as he can.

His decision was influenced by local parameters such as the expected inflation for the coming twelve months, the unemployment rates and other economic factors in the local economy. He also looked carefully into his colleagues' monetary policies around the globe and took his action to what he thinks is best for Canada.

Are we in world currency war? Probably yes, and the world's Central Banks’ Governors are the generals who command the army of the economy.

You Could Be The Next Goldstar Beer Taste Tester. Seriously. You Could Be The Next Goldstar Beer Taste Tester. Seriously. TrendingThe Kosher Switch May Not Be So Kosher After All The Kosher Switch May Not Be So Kosher After All TrendingIsraeli Officials Liken EU-Proposed Labels on Settler Products to Nazi Yellow Stars of David Israeli Officials Liken EU-Proposed Labels on Settler Products to Nazi Yellow Stars of David Trending
 

Netanyahu, Amy Schumer, Sarah Koenig and Others Make TIME's 100 Most Influential People

April 17, 2015 | By Caitlin Marceau
Netanyahu, Amy Schumer, Sarah Koenig and Others Make TIME's 100 Most Influential People

Kanye West, Kim Kardashian, Diane von Furstenberg, Kevin Hart, Lorne Michaels, and many more make the 12th annual list

Read More

Israeli Defense Firm Creates System to Detect Terror Tunnels

April 17, 2015 | By JNS.org
Israeli Defense Firm Creates System to Detect Terror Tunnels

Elbit Systems developed the new tunnel-detection system together with the Israeli Defense Ministry and other partners in Israel

Read More

Rabbis, Mental Health Professionals Holding Conference to Support Young LGBT Jews

April 17, 2015 | By Caitlin Marceau
Rabbis, Mental Health Professionals Holding Conference to Support Young LGBT Jews

Conference to be held in Israel this Sunday will bring Orthodox rabbinical community, and the therapeutic community, together in support of LGBT teens

Read More

Kim Kardashian and Kanye West’s Trip to Israel Cost Them $1 Million

April 17, 2015 | By Caitlin Marceau
Kim Kardashian and Kanye West’s Trip to Israel Cost Them $1 Million

Mind you, they were only there for a couple days

Read More

Hamas to Gazans: Kidnap More Israelis

April 17, 2015 | By JNS.org
Hamas to Gazans: Kidnap More Israelis

"Our men, our women, our children [should] always think of kidnapping your soldiers and settlers, wherever they may be"

Read More

You Could Be The Next Goldstar Beer Taste Tester. Seriously.

April 17, 2015 | By Caitlin Marceau
You Could Be The Next Goldstar Beer Taste Tester. Seriously.

The company is need of a new chief beer tester, and is turning to the Israeli public for help

Read More

The Kosher Switch May Not Be So Kosher After All

April 17, 2015 | By Caitlin Marceau
The Kosher Switch May Not Be So Kosher After All

Marketed as a way to keep kosher during the Shabbat, many rabbinical sources fear the Kosher Switch may rely on a Jewish loophole to keep "kosher"

Read More

David Blatt Has NBA's Cavaliers Surging at Playoff Time

April 17, 2015 | By Bob Jacob/Cleveland Jewish News/JNS.org
David Blatt Has NBA's Cavaliers Surging at Playoff Time

"It's a great time to be in the city of Cleveland," says the Israeli Head Coach, whose team squares off against the Celtics on Sunday

Read More

More Headlines