Can someone out there help the economically challenged understand how to project the effect of y2k economic issues in america to foreign currencies tied to the us dollar ? I am considering re-locating to the Philippines where I have extended family in order to ride out the y2k crisis. Given the current exchange rate of 40 pesos to the us dollar how do I relate that to future projections ? Is the exchange rate likely to remain relatively the same or move in a significant manner. And if it moves which way does it go ? Any thoughts will be appreciated.

Thanks

A Cline

-- Alan Cline (atcline@earthlink.net), July 20, 1998

Answers

The exchange rate depends on a lot of things, of course, but I think it basically comes down to the degree of confidence in the authority backing that money, relative to the other currencies. If reports are correct, even if the US does badly with Y2K, the rest of the world is worse off. That will give the US a relatively stronger position. Of course, some strange inversions may occur if economies that are not heavily technology dependent are less affected.

Something that may affect the US Dollar more than Y2K is the coming convergence of European currencies to the Euro. The Euro will be a new international store of value to rival the dollar. This means that central banks which have been storing their reserves in dollars may sell off those dollars in favor of Euros, thus depressing the dollar's value (increase in supply generally lowers prices, in this case, the exchange rate).

Hope that helps!

-Jeff

-- Jeff Mantei (manteij@hotmail.com), July 21, 1998.

Also keep in mind that if a nationalistic spurt occurs in Japan as times worsen there, they might begin cashing in their paper in the U.S. market. They are also heavily positioned in Latin America so if they decide to reduce their holdings there also, it would be a double whammy to the U.S. dollar. This would trigger another round of currency devaluations throughout the develpoing world. Just keep watching the exchange rates and pay attention to the Japanese and Canadian currencies. Canada is experiencing their first real currency crisis in years and they are totally befuddled on how to deal with it. Once the yen eventually falls to market forces and hits 150 to the dollar, and the Canadian dollar lands around $1.60 to the USD, watch the bond market. If prices decline steadily for several weeks, pay attention to the business press to get information on who is selling and in what quantities. This is how deflation occurs. Read your history books about the 20's & 30's and buckle your seat belt.

-- John Galt (jgaltfla@hotmail.com), July 21, 1998.