Ecuador, China and the Dollar

By August 30, 2007Trade

The dollar is losing ground against most foreign currencies and the result is a steady uptick in U.S. exports, driven mainly by manufactured goods, and more exports translates into more good paying manufacturing jobs in the U.S. There are other factors at play, of course, but the value of a nation’s currency is a key determinant of its export performance.

The impact is being felt in other countries, such as Ecuador which adopted the U.S. dollar as its currency back in 2000. As the dollar declines against other Latin American currencies, Ecuador is becoming an increasingly popular shopping Mecca. For example, four years ago, a dollar bought 2,909 Columbian pesos. Today it goes for only 2,185 pesos. Ecuadorean border towns are doing a roaring business with Columbian shoppers searching for bargains.

Of course, the declining dollar is not reducing our trade deficit with China because the Chinese continue to intervene in currency markets, buying U.S. currency and bonds to keep the value of their own currency artificially depressed. Washington is growing impatient with China’s currency manipulation. Watch for legislation to start moving when legislators return from the August recess.

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