7 ms·

Aren't there negative consequences to having one's own currency when it comes to import? For instance, Greece has a tiny export market and mostly import goods.

• dogma1138 11y ago
  Eh? The swiss franc was always higher than the euro. The peg was I swiss = 1.25 euro's, it actually lost value compared to the euro over the past year.. Also i don't think that managing's Icelands economy is easier, i would say it's harder. Iceland has 300,000 people, it's economy is pretty much based on fishing aluminum and seasonal tourism. It's a country in which when a bank goes bust the central bank goes out with it, when a large company goes bankrupt it can result in the unemployment rate jumping into the double digits.. Having 18 million people is a very big advantage over having 300,000, you have the wealth of those 18 million as a collateral not to mention a much healthier risk diversity.
  • Svip 11y ago
    Back in 2011, it was worth more. But the peg was actually at 1 euro = 1.20 francs,[0] but in mid-January it went to 1 euro = 0.81 francs in one day, that's 30%. Meaning that buying things with euros in Switzerland became 30% more expensive all of the sudden. [0] http://www.bbc.com/news/business-30829917 http://www.bbc.com/news/business-30829917
    • atmosx 11y ago
      That was a very specific choice made by the national bank to protect their national coin and goods from the Euro. It was a very smart nd contested political / financial move that no other country in europe would have the balls to put up with.
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• perlgeek 11y ago
  I agree. I also find it pretty insincere to brush off economic problems with the half-sentence "but those should have been manageable". Aren't there lot of nations with economic problems that aren't managable (in the sense of averting a shrinking economy in the course of a few years), even though they have their own curreny? Finally, on the small scale, traveling is so much easier if you don't have to worry about currrency. No need to get cash in the foreign currency in advance. No need to worry about exchange rates. No need to worry about your bank adding crazy exchange fees. You can compare price to what you're used to without having to do any mental (or awkward mobile phone) arithmetics. Border regions and travelers profit imensly from the Euro. This is pretty obvious, but econmics pieces on the Euro routinely forget to mention it.
  • pjmlp 11y ago
    On the other hand, 1 € in Portugal isn't the same value as 1 € in Germany, given the salary differences. Yet many brands, e.g. H&M, tend to have the same prices for some of their goods. Which leads to the disparity that we are now suffering from.
    • oblio 11y ago
      Your argument is mostly invalid as H&M, for example, has tags in multiple currencies. And as a non-Euro Romanian I can tell you that the conversion rate is not favorable to the buyer.
      • pjmlp 11y ago
        My argument is based on the fact that I have seen such tags with the same price for Germany and Portugal. It true that they don't do it for most of their products, but that doesn't change the fact I have seen such price tags.
        • oblio 11y ago
          My point is that for H&M and similar networks the prices are constant across countries, based on their pre-set FX rate, which is not in the favor of the buyer. The initial argument would only be valid if prices in different currencies would be smaller in the poorer countries, which doesn't happen anyway, regardless of currency.
• peteretep 11y ago
  > If they were devaluing their own currency, surely their > trade partners would be concerned with dealing with > them, unsure what their money would be worth a month > from now The seller simply insists they get paid in their own currency, or USD. See: http://study.com/academy/lesson/how-currency-changes-affect-imports-and-exports.html http://study.com/academy/lesson/how-currency-changes-affect-...
  • crdb 11y ago
    This is already the case for much of commodities trading which is a naturally international business dealing with "interesting" countries. Including in (now formerly) banned countries like Iran. Even if you're not doing the trade in USD, your accounting currency is probably the USD (even if you're based in say, Geneva and have no business in the US) and every trade is immediately FX-hedged back to USD. Fun things happen when you can't hedge the currency (because, say, it's extremely illiquid, like the CFA franc). This also applies to commodities like fertilizers in Argentina. The price of doing a trade usually increases for the local counterparty to match the risk taken by the foreign counterparty. And then, you try and hedge it anyway using a basket of things. You can hedge ferts to an extent with a basket of agricultural commodities that use them and hope the relationship holds. It's worth taking the risk because you can have such a deep discount and increase your normally razor thin margin (a hedged physical trade might not net you 1%, but you might get double digit percent shipping rice from Myanmar to Nigeria).
• letitgo12345 11y ago
  I think one benefit of imports being more expensive is that it boosts the domestic economy. Not sure whether it's enough to offset the rise in import costs for Greece though.
  • Svip 11y ago
    That's only viable if the country in question makes the same products. One example I heard was kitchens. They don't make kitchens in Greece, so they have to import them. But you are right, if there was a significant industry in the country in question, it would. I'm afraid it doesn't apply to Greece, though.
    • hudibras 11y ago
      Sorry if this is too pedantic, but that's the whole point of devaluing the currency. In this case, there's no domestic kitchen industry because it's cheaper to import them. But if the currency devalues, then it becomes more expensive to import them and so domestic companies jump into the marketplace. Greeks start buying Greek-made kitchens, creating jobs in the kitchen factories. Then the factories start exporting them because it's cheaper for foreigners to buy the Greek kitchens then their own country's, because of the devaluation.
      • michaelt 11y ago
        Right, but it's more complicated than that because different types of goods have different supply behaviours. Imagine if the Greek car industry relies on importing steel, and there isn't enough spare capacity in Greek steelworks to satisfy national demand, and due to currency devaluation Greek car manufacturers can no longer afford to import steel. You can build more steelworks capacity (if you can get investors) but the new plants aren't going to start producing for two-three years at least. By the time supply catches up with demand, the car manufacturers will already have gone out of business. And if that car maker makes electric cars and needs lithium for the batteries, and greece doesn't have any lithium reserves, local production isn't an option. And if the best you can do without lithium is lead acid batteries, that's not much of an option either :) Of course, at the moment Greece gets the worst of both worlds - who'd want to invest in a Greek steelworks today when they'll probably be out of the euro in a few years? - but people shouldn't imagine devaluing a currency is a painless cure-all for economic problems :)
• fla 11y ago
  Yes there are consequence, and it's a good thing IMO: It ties your currency to your politics. It forces the politics to be smart because taking a very stupid decision will cause your currency to be attacked on the markets. It was a sane regulator which lacks in today's Euro countries.
• vbezhenar 11y ago
  > If they were devaluing their own currency, surely their trade partners would be concerned with dealing with them, unsure what their money would be worth a month from now. If I'm not mistaken, that's what futures in exchange markets are for.
• RivieraKid 11y ago
  > Greece has a tiny export market and mostly import goods Exports are equal to imports over the long term (tourism is basically a form of export).