By Brad Haire
University of Georgia
You may have heard that the U.S. dollar is either weak or
strong. But what does this mean, really?
“It’s all relative,” said Don Shurley, an agricultural economist
with the University of Georgia College of Agricultural and
Environmental Sciences.
The Exchange
Being weaker or stronger is about how much of a country’s
currency you can buy using another country’s currency at any
time, relative to what you could buy at a previous time.
Take the U.S. dollar, for example. How many Japanese yens or
Pakistani rupees can you get for a single U.S. dollar? On Oct.
28, you could’ve gotten about 59 Pakistani rupees or 123 yens
for 1 U.S. dollar.
This is called the exchange rate. And it changes all the time,
24 hours a day.
How are exchange rates decided? The short answer, Shurley said,
is good old supply and demand.
Piece of the Action
Say the U.S. economy is strong and the return on investment
looks good in the United States. In this scenario, foreign
investors want a piece of the action. But they have to have U.S.
dollars to invest or to do business here.
These investors might pay more, using their currency, for the
U.S. dollars they need to make the investments. They then take
their country’s currency and convert it into U.S. dollars.
“When they put their money into U.S. dollars, it drives the
dollar value up relative to their country’s currency,” Shurley
said. It works both ways. U.S. investors investing in other
countries affect the value of those countries’ currencies
compared to the U.S. dollar.
Strong Dollar
The U.S. dollar has been said to be strong over the past few
years. So, what’s better? A strong or weak U.S. dollar?
A strong U.S. dollar can buy more of another country’s currency
and products in the United States. A U.S. citizen can buy more
in another country on vacation.
But, remember. It’s relative.
The strong U.S. dollar also makes it harder for other countries’
citizens to vacation in the United States and to buy U.S.
products in their markets. This can hurt parts of the U.S.
economy.
Weak Prices
For example, the strong U.S. dollar is one reason cotton prices
have been so low for U.S. farmers in recent years. It has also
hurt the nation’s textile industry, which turns cotton into
shirts, jeans and other clothes.
The strong U.S. dollar, according to the National Cotton
Council, has made it hard for U.S.-made textile items to compete
in foreign markets. And it has allowed cheaper foreign-made
textiles to dominate the U.S. market.
So, the American textile industry has shrunk over the past few
years. It can no longer handle the amount of cotton it used to,
Shurley said.
In 1997, U.S. textile firms could economically make enough
clothes and cotton items to use about 11 million bales of
cotton. In 1999, that dropped to 10 million. This year, they
will need only about 7.5 million.
As a result, U.S. cotton farmers have to sell their cotton
abroad. This year, U.S. farmers will grow about 18 million bales
of cotton. (A bale is about 480 pounds of lint.) Of this, about
11 million will have to be exported, he said.
But to compete on the world market, U.S. exporters have to drop
their prices to compete, sometimes below what it cost to grow
the crop in the United States.
It’s been reported that the dollar weakened over the summer.
This could affect the U.S. economy, the world economy, cotton
farmers and you. But we’ll have to wait and see. It’s all
relative.
