US Dollar

[JuanElGriego]

It's really going to shit.

Gov'ts around the world are slowly starting to cash in their chips and under some scenarios, there could be a catastrophe lurking. Even right now, my mother returned from Greece where the Euro is roughly 1.3 dollars. Cashing in $1000 and getting 700 euros in return is no fun, believe you me. She came back mighty pissed and swearing not to return again if this keeps up, and i can't blame her. Would you go somewhere your money lost a third of its value the moment you stepped off the plane??????

This leads me to ask any economics majors around here, what's up with the dollar still hanging in there at 33 dominican pesos. I woulda thought it'd be under 30 for sure the way things are going but i was pleasantly surprised when i checked it today.

[MisterPink]

The Dominican Peso trades completely independant of any other US Dollar relationship!

EUR/USD fluctuation does not affect RD/USD.

It is pegged to 33/1 USD as far as I am concerned, it normally goes to 31 at holiday time and barely broke 33 this season.

[Dick Dawson]

It's really going to shit.

Cashing in $1000 and getting 700 euros in return is no fun, believe you me. She came back mighty pissed and swearing not to return again if this keeps up, and i can't blame her. Would you go somewhere your money lost a third of its value the moment you stepped off the plane??????

She's lucky she didn't go to England. She'd only get 500 pounds for her $1000 right now.

[THEGAME]

The Thailand Baht keeps dropping also, I believe it's now 35 Baht to 1 American Dollar, when I planned my trip in the begining, it was 39 Baht to 1 American Dollar.

"THE GAME"

[ROVER]

There are many different forces at work here.

First the administration wants a weak dollar. Why ?

1. Although for guys like us a weak dollar sucks when we travel it is really a good thing for the domestic economy. Thats because looking from the reverse situation alot of tourists from around the world will take advantage of the weak dollar and their present purchasing power and decide to go to America for vacation rather than lets say a European country creating hundreds of thousands of jobs in the tourist industry.

2. Also a weak dollar makes our exports more attractive to other countries. For eg. all things being equal if something is made in Germany and the same product is made in America it may still be cheaper even after shipping costs for a person in England to purchase the American product due to the exchange rate savings. This acts to create/protect domestic jobs.


The danger that you allude to is the scenario that some major foreign country, a big player like China, Japan, Russia etc. stops buying our bonds, which finances our national debt. If this were to happen we would have to raise our intrest rates to make our bonds more attractive to the other foreign investors and this would create a perfect scenario for a recession because..

1. The higher intrest rates would dramatically slow investments here by domestic companies by making borrowed capital more expensive to aquire resulting in stifeld growth. Lack of investment in Research and Development, upgrading equipment etc. etc. and ultimatlely loss of domestic jobs.

2. The dollar would strenghten against other currencies (due to the higher intrest rate/return for foreign currency investors) and therefore make our exports less attractive to world consumers which in turn would create lay-offs here in domestic factories and less tourism resulting in layoffs in that sector of the economy as well.

3. We would have to raise taxes to make up for the shortfall in unsold treasury bonds to make our quarterly national debt payments. This would make less capital available to the consumer to spend on products and thus again result in lay-offs in manufacturing and services areas of the economy.

Making things a little more complicated as to why in places like the D.R. our currency has not slid as much as it has vs. the euro? The other thing to throw into the mix is that the Saudis will only accept American dollars as payment for oil purchases. So a small country (like the D.R. for eg.) needs a certain amount of dollar reserve for this wheras the europeans have a surplus of dollars.

[thunderstar]

She's lucky she didn't go to England. She'd only get 500 pounds for her $1000 right now.

True - but more importantly - I get $1000 for my £500!!!! :p

[Hunter]

Great reponse Rover. Who says we are bunch of dummies here! You must work on Wall Street.

China does have us by the balls now and in the future!!

[agua chico]

I am headed to Germany and England in 2 weeks and I dread the thought of spending any money there. I have a place to stay for free so that makes it easier. If I did not have anything important to do there I would never go there.

[ajax718]

Also keep in mind a certain percentage of Dominican Republic's GDP (Gross Domestic Production) comes from money being sent back to that country from Dominicans working in foreign countries (US, Spain) a la Western Union. I forget exactly what the percentage rate is, but it is certainly big enough to mention.
The term I think is called expenence, or something like this. What this means is money sent from a person working in a foreign country back to his/her home country. I got this info from an article. In it I definietly remember Haiti's economy consists of almost 50% money from expenence.
The point of all this is since Dominican Republic's economy is dependent enough on import of expenence money (especially from the US), then US dollar value dropping will not increase the DR peso value since DR peso is in part connected with US dollar.
Also keep in mind, one of DR President Leonel campaign promise was to stabalize the value of the DR peso. Remember back in 2004 the DR peso exchange to US dollar 50 to 1, due to all the corruption that took place under the former President Hipolito.

[MisterPink]

Are you sure you don't mean remittance?

mp

[SJG]

Yes I think he means Remittance. From Wikipedia:

The Dominican Republic (http://en.wikipedia.org/wiki/Dominican_Republic) is a middle-income developing country (http://en.wikipedia.org/wiki/Developing_country) primarily dependent on agriculture (http://en.wikipedia.org/wiki/Agriculture), trade, and services, especially tourism (http://en.wikipedia.org/wiki/Tourism). Although the service sector has recently overtaken agriculture as the leading employer of Dominicans (due principally to growth in tourism and Free Trade Zones (http://en.wikipedia.org/wiki/Free_Trade_Zones)), agriculture remains the most important sector in terms of domestic consumption and is in second place (behind mining) in terms of export earnings. Tourism accounts for more than $1 billion in annual earnings. Free Trade Zone earnings and tourism are the fastest-growing export sectors. According to a 1999 International Monetary Fund (http://en.wikipedia.org/wiki/International_Monetary_Fund) report, remittances (http://en.wikipedia.org/wiki/Remittance) from Dominican Americans (http://en.wikipedia.org/wiki/Dominican_American), are estimated to be about $1.5 billion per year. Most of these funds are used to cover basic household needs such as shelter, food, clothing, health care and education. Secondarily, remittances have financed small businesses and other productive activities.