On today’s show we’re talking about the impact of changes in the currency markets on global economic stability. We have endured supply chain disruptions as a result of the pandemic over the past two years. What I’m about to share could have an even larger impact than anything we have seen in the past two years.
There is nothing that says the US dollar must have an exchange rate of 75 cents to the Euro, or the Canadian dollar should be 74 cents to the US dollar.
If the Euro is at parity with the US dollar, that’s not a problem in and of itself. The world is used to adapting to whatever becomes the new normal.
What the world has a very hard time with, are rapid changes. Those rapid changes seem to be everywhere.
Today for the first time in over twenty years, the Euro dropped below $1 USD.
Not only are we experiencing changes in currency values, we’re experiencing many of them at the same time.
We have seen what the strengthening US dollar has done to numerous economies around the world.
I’ve traveled to Japan so many times. The traditional simple math has been about 100 Yen to the US dollar. In fact, when you travel in Japan, they have a 110Y store. This is the equivalent of the Dollar store in the US. Some things transcend culture. But as of today, the change rate Yen reached 139 yen to the US dollar.
Big changes like this can affect the economics of contracts that span borders. Some of those contracts would never have anticipated a 36% swing in foreign exchange in less than 18 months. Some international trade contracts simply cannot be honoured at those prices, depending on how they were written. This is not an issue of manufacturing capacity. It’s an issue of profitable global commerce. These changes will create supply chain disruptions, the likes of which we have not been imagining or predicting.
When you conduct a historic retrospective about social unrest, about violent conflict within a nation, the vast majority of people never saw it coming.
In times of unrest, you see it first in the weakest nations first.
But now we have protests in Sri Lanka as people are starving and have no fuel. We are seeing protests expanding from Peru into Ecuador. There farmers in the Netherlands are protesting their government’s recent moves to tax farmers for the methane gas emissions from livestock. If the farmers refuse to sign up to new and draconian emissions standards which will effectively put them out of business, the government will seize their farms. If you had told me in 2019 that we would have protesters occupying my home city for weeks in the depth of the coldest days of winter, I would said no, that’s unimaginable. How many would have predicted the events of January 6 at the US Capitol? Yet, here we are. These are things that would have seemed unthinkable, but now are more obvious in retrospect.
En masse, we don’t have the economic adaptability to react to rapid change. If you can adapt to rapid change individually, then you are going to be ahead of the pack. But more importantly, if you can connect the dots and anticipate the links between all of those interconnected economic systems, you can be better prepared to adapt.
