Another US Dollar Question - How Bad Can it Get?

Factual Questions
1

At my local Canadian bank yesterday, I noticed they were buying US dollars for .91 cents Canadian.

About 5 years ago the same bank was buying them for $1.60 Canadian, so it got me thinking;, is there a theoretical limit?

Is there a point where it can only get so low and that’s it?

Obviously it can’t get to $0.00 right? Could it get to .50 cents? .25 cents?

If it ever gets low enough, what’s to stop a country or person to rent a container ship, load it jam full of products from America, and take the stuff home and sell it there?

I’m waiting for the US dollar to hit about .25 so I can take one of those 107 day world cruises that sell for about $22,000 US. (it will only cost me $5,500 CND)

Hey, that’s only about $50 a day, who knows, that may be my new home!

Ok seriously, how low can it go?

Karen

2

[QUOTE=Karen_J]

I’m waiting for the US dollar to hit about .25 so I can take one of those 107 day world cruises that sell for about $22,000 US. (it will only cost me $5,500 CND)

[/QUOTE]

Sorry to tell you this, but if the USD sinks to $0.25 Canadian, you’re not going to get a cruise like that for $22,000. They still have to pay suppliers outside the US, so USD prices will go up.

3

[QUOTE=Karen_J]
At my local Canadian bank yesterday, I noticed they were buying US dollars for .91 cents Canadian.

About 5 years ago the same bank was buying them for $1.60 Canadian, so it got me thinking;, is there a theoretical limit?

Is there a point where it can only get so low and that’s it?

Obviously it can’t get to $0.00 right? Could it get to .50 cents? .25 cents?

If it ever gets low enough, what’s to stop a country or person to rent a container ship, load it jam full of products from America, and take the stuff home and sell it there?

I’m waiting for the US dollar to hit about .25 so I can take one of those 107 day world cruises that sell for about $22,000 US. (it will only cost me $5,500 CND)

Hey, that’s only about $50 a day, who knows, that may be my new home!

Ok seriously, how low can it go?

Karen
[/QUOTE]

There’s no theoretical lower limit. In real life, of course, it can’t reach zero until we get to the point where the US economy is worth nothing at all. That seems, well, unlikely.

What’s stopping you loading up on US goods and selling them is likely to be Canadian customs rules. They might have a view on attempts to circumvent Canadian taxes. Doesn’t have much to do with the exchange rate, though.

4

Who would have thunk that we could now get over $2 for our quid?

:smiley:

5

I am not in Canada but am living in both the UAE economy (linked to the USD at a fixed rate) as well as the Czech economy. Slightly over 2 years ago in August 2005, 1 USD = 25.5 CZK. Today it is about 17.8. I imagine by late winter it will be at 15. This is a 15% drop from today, so you can figure it out for CAD.

There is no reason for the USD to stop falling right now. The US is over its head in debt and the Fed keeps lowering interest rates. Why would anyone want USD? The AUD will soon reach parity and the EUR will surely hit 1.50. Buy Gold, sell USD.

6

Hyperinflation - currently happening in Zimbabwe, which at last count had an inflation rate of 8,000%. (Not that I suggest the USD will go that way, but you did ask about theoretical limits.)

Anecdotes I’ve heard: (this one’s from a history lesson at school) during the Weimar Republic currency crisis, people were paid in wheelbarrows full of money. A guy went into a store to get something, and when he came out the wheelbarrow was gone and the money had been tipped onto the pavement.

In Zimbabwe a few months ago, a loaf of bread cost more than Z$100,000. The government has subsequently printed a Z$200,000 bill because of this, and its subsequent devaluation.

During a particularly nasty bout of inflation in Israeli, an Israeli woman I met said they employed people to walk round stores changing the price labels upwards on a twice-daily basis.

And of course before the eurozone, Italy used to have to devalue the lire on a regular basis.

The question about the container ship: to a certain, limited extent, yes, for a while, you could indeed load up on US-produced stuff and get a bargain. This is what happens around pretty much every open border anyway, but particularly during currency crises - such as those in Argentina and Thailand - this is very similar to what people in neighbouring countries did.

7

Yes, the container ship example could be done. And the reality is that big corporations do this every day. If the US dollar drops in value, then it becomes cheaper to buy US goods and sell them overseas. This is why China keeps it’s currency artificially low.

But there’s a limit, because when you to a country with a devaluing currency and buy lots of things and ship them overseas, you’re essentially buying that devaluing currency. And lots of people will try to do the same thing you’re doing. And when lots of people buy something, the value of that thing will rise, simple supply and demand.

So when a currency falls, it becomes attractive to purchase goods in that currency, which means the currency will tend to rise. Eventually the currency reaches a new equilibrium point, all other things being equal. Of course, in the real world, all other things aren’t equal, and there are always new political and economic factors that will cause that currency to either rise more or fall more or stay the same more, and if you’ve got a way to figure all those out you can become a rich person speculating in the currency markets.

8

[QUOTE=PaulParkhead]
There’s no theoretical lower limit. In real life, of course, it can’t reach zero until we get to the point where the US economy is worth nothing at all. That seems, well, unlikely.
[/QUOTE]
Important nitpick: It can’t reach zero until we get to the point where the US Government is worth nothing at all. The US dollar is worth something in a large part because people have faith in the government that prints and manages it. When hyper inflation occurs, it doesn’t always mean that the economy has shut down, it means that no one’s doing business in dollars any more. Lots of economies keep on chugging (albeit at greatly reduced efficiency) on barter or another country’s official currency, even when their currency is next to worthless.

9

I’m just hoping it stays that low when I go for my next visit to America. I don’t have a large shipping container, but I normally put a small, full suitcase into a larger suitcase and end up filling that up by the time I’m done. Not that I wish for bad economy in America, but it makes for great shopping when I visit!

10

[QUOTE=iamthewalrus(:3=]
Important nitpick: It can’t reach zero until we get to the point where the US Government is worth nothing at all. The US dollar is worth something in a large part because people have faith in the government that prints and manages it. When hyper inflation occurs, it doesn’t always mean that the economy has shut down, it means that no one’s doing business in dollars any more. Lots of economies keep on chugging (albeit at greatly reduced efficiency) on barter or another country’s official currency, even when their currency is next to worthless.
[/QUOTE]

Point noted, thanks. I should know better :slight_smile:

11

[QUOTE=jjimm]
In Zimbabwe a few months ago, a loaf of bread cost more than Z$100,000. The government has subsequently printed a Z$200,000 bill because of this, and its subsequent devaluation.
[/QUOTE]

I was there in 2002. The rate at the time was $400Zim to the US dollar. A week later it was $600Zim to the dollar. I still have some $10Zim notes.

12

The professionals don’t seem to be especially worried about inflation. In fact the prices of inflation protected securities are actually lower than a couple of years ago.

13

[QUOTE=Darryl Lict]
I was there in 2002. The rate at the time was $400Zim to the US dollar. A week later it was $600Zim to the dollar. I still have some $10Zim notes.
[/QUOTE]

I was there the previous year. The “official rate” was about Z$30 to the GBP if I remember right, but the “street” rate was more like Z$100. I still have quite a few Z$1 coins. They used them as chips in the casino as they were about worthless for anything else.