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Dollar's Power Sinks Worldwide

Published:

SAO PAULO, Brazil (AP) - Antique store owners in lower Manhattan, ticket vendors at India's Taj Mahal and Brazilian business executives heading to China all have one thing in common these days: They don't want U.S. dollars.

Hit by a free fall with no end in sight, the once mighty U.S. dollar is no longer just crashing on currency markets and making life more expensive for American tourists and business people abroad; its clout is evaporating worldwide as foreign businesses and individuals turn to other currencies.

Experts say the bleak U.S. economic forecast means it will take years for the greenback tosentiment is growing in nations where the dollar was historically accepted as equal or better than local currency - and dollar aversion is even extending to some quarters in the United States.

At the Taj Mahal, dollars were always legal tender, alongside rupees, for entry into the palace. But because of the falling value of the dollar, the government implemented a rupees-only policy a month ago. Indian merchants catering to tourists have also turned bearish on the dollar.

"Gone are the days when we used to run after dollars, holding onto them for rainy days," said Vijay Narain, a tour operator in the city of Agra where the Taj Mahal is located. "Now we prefer the euro. It gives us more riches."

In Bolivia, billboards feature George Washington's image on a $1 bill alongside a bright pink 500 euro note, encouraging savers to turn to the euro to tuck away money earned abroad or sent home in remittances.

"If the dollar's going down ... save it in Euros!!!" say the signs popping up around La Paz for Bolivia's Banco Bisa.

And in neighboring Brazil, the Confidence Cambio money-changing service was the first to start offering yuan so travelers to China no longer have to change the money into dollars first. The service is already a hit because Brazil does big business with China, and lots of Brazilians are heading to the Olympics this summer.

"Now we tell people not to take dollars when they go abroad, it's better to change it directly to the local currency," said Fabio Agostinho, one of the firm's managing partners. "If people leave here with dollars and go abroad, they lose when they exchange them. It's the same thing whether they're heading to China, Europe or even Argentina."

In Manhattan's Bowery district, Billy LeRoy, the owner of Billy's Antiques & Props, prefers payment in euros so he can stockpile the currency for his annual antique buying trip to Paris.

"Whip out dollars at the French flea market now, and they'll shoo you away," he said at his store near apartment buildings where Europeans are snapping up units because they've become dirt cheap. "Before it was like the second coming of Christ, but now they don't want it or if they do take dollars, they're going to take their pound of flesh."

The dollar has steadily eroded in value against the euro and other currencies since 2002 as U.S. budget and trade deficits ballooned, but fears of an American recession and credit crisis have sent the dollar to stunning lows amid predictions the slump will continue for a long time.

The euro traded for a record $1.5625 before declining to $1.5586 Thursday while the dollar dropped below 100 Japanese yen for the first time since November 1995. It traded as low as 99.75 yen before recovering some ground to 101.68 yen. The dollar also recently hit a 10-year low against the Chilean peso, and fell to its lowest level against Brazil's real since the nation floated its currency in 1999.

While low dollar cycles have come and gone for decades, experts caution that it's now much more difficult to predict when this one will end because the euro didn't exist as competition for the dollar before.

During previous U.S. economic downturns, big foreign funds typically snapped up U.S. treasuries, helping to shore up the dollar to a certain degree. But the euro and currencies from other nations are now seen as legitimate options, and interest rates are higher outside the United States - meaning the funds can get better returns on investments elsewhere.

"You have the U.S. still holding this trade deficit, but now you have the possibility of a U.S. led recession, and you have a weakening currency. So it's a very dark outlook for the dollar," said Gareth Sylvester, senior currency strategist with the British firm HIFX Inc., which executed $40 billion in currency trades last year.

Nations that were once seen as incredibly risky for investments - such as Brazil - are now seen as good long-term bets. And countries such as China and Russia, with burgeoning coffers of money to invest abroad, are thought to be shifting some of their reserves or diversifying fresh income to destinations and currencies outside the United States.

It used to be important for most countries "to accumulate dollars as a precautionary element against rainy days, but the accumulation of reserves has become so large in most emerging market countries that the balance is way beyond what's needed for precautionary reasons," said Eliot Kalter, a fellow at Tufts University's Fletcher School of Law and Diplomacy and a former International Monetary Fund official.

While most experts believe the dollar will eventually regain strength, no one is willing to predict when that will happen.

"I think the factors that are affecting the weakness of the dollar will be reversed, but no time soon," Kalter said.

The problem right now, is that "people just don't want to be holding U.S dollars and U.S.-based equities," Sylvester added. "If you are an investor with a million dollars to invest, you look for the highest yield - you're looking at South Africa, Australia, New Zealand."

And it's not only the big time investors that are looking for other options.

In Peru, where savings in U.S. dollars were long a popular hedge against inflation, many citizens are closing dollar accounts in favor of Peruvian soles.

At the same time, businesses like supermarkets, movie theaters and cable TV companies that used to accept dollars are now demanding soles.

Edwin Figueroa, a 29-year-old systems engineer, switched his checking account from dollars to soles seven months ago as the dollar's decline started worrying him. He doesn't think he'll be going back anytime soon.

The Peruvian sol "is stable now," he said. "And maybe in a year, the dollar will even go lower."

Associated Press Writers Biswajeet Banerjee and Leslie Josephs contributed from Lucknow, India, and Lima, Peru.

Entry #1,310

Comments

1.
time*treatComment by time*treat - March 13, 2008, 6:05 pm
First I've heard of this. Why weren't we warned? Oh, wait... :sarcasm:
2.
Rick GComment by Rick G - March 13, 2008, 7:59 pm
This is a disgusting shame and a travesty to the American people. Put the blame squarely where it belongs....on the most inept government we have EVER had as a nation. The writing was on the wall, but our myopic administration and an absolutely useless and impotent congress could only read the word "terror".

Well folks, now it's our turn to live in caves. Get used to it.
3.
LOTTOMIKEComment by LOTTOMIKE - March 13, 2008, 8:19 pm
its sad,i'm worried for the future.something in america i never thoughti'd do.
4.
LOTTOMIKEComment by LOTTOMIKE - March 13, 2008, 8:21 pm
also china is adding hugely to its military.i think china is going to end up being someone to watch.
5.
ThinkComment by Think - March 13, 2008, 9:34 pm
Our wake-up call came in 1973 with the gasoline crisis and again about 5 years later with a reminder. Of course there is the decades of huge trade defecits which had to cause problems sometime.

Anyway, with a low dollar and high oil I am wondering when one or two of the big 3 automakers will cease business. Remember Chrysler was proclaimed "Operationaly Bankrupt" a few months ago and Ford literally bet their future on a turnaround and GM lost about $40 Billion dollars last year. With the low dollar and high oil, the comming tax increases may just be the camel that broke the straws back.
6.
ThinkComment by Think - March 13, 2008, 9:35 pm
Our wake-up call came in 1973 with the gasoline crisis and again about 5 years later with a reminder. Of course there is the decades of huge trade defecits which had to cause problems sometime.

Anyway, with a low dollar and high oil I am wondering when one or two of the big 3 automakers will cease business. Remember Chrysler was proclaimed "Operationaly Bankrupt" a few months ago and Ford literally bet their company on a turnaround and GM lost about $40 Billion dollars last year. With the low dollar and high oil, the comming tax increases may just be the camel that broke the straws back.
7.
LOTTOMIKEComment by LOTTOMIKE - March 13, 2008, 9:40 pm
scary stuff,i was curious has there ever been a situation like this before in america this bad in regards to high oil,low dollar,bad housing,etc./
8.
Comment by pacattack05 - March 13, 2008, 9:52 pm
No Mike.
Sure there have been droughts and floods, but all 5 things simultaneously? I don't think so.

We are definitely at a cross road. This a different game in opposing the norm. A whole nother world.

The signs all point one way.
9.
time*treatComment by time*treat - March 13, 2008, 10:21 pm
To answer Lottomike's question, the 1930's were kinda rough. ;-)
In 1933, FDR closed the banks & devalued the dollar by 43% ~ called it a "Banking Holiday".
10.
justxploringComment by justxploring - March 14, 2008, 1:28 am
time*treat -- no reason to be sarcastic. It's not that we weren't warned or that people weren't aware of the dollar's decreasing value years ago, it's that for many Americans, there really wasn't much we could do about it. After all, when you need to pay your mortgage and feed your kids, you can't risk investing $10,000 in mineral commodities. After the NASDAQ fell in 2000-2001 and the DOW plummeted in Sept 02, some people lost most of their savings.
11.
justxploringComment by justxploring - March 14, 2008, 1:31 am
...and I know it's Dow not DOW. Just a typo.
12.
four4meComment by four4me - March 14, 2008, 1:39 am
Soon it will be one currency and one goverment for all...... never fear just run for the hills and get back to living off the land.
13.
time*treatComment by time*treat - March 14, 2008, 7:24 am
Jxp, Mike asked if it had ever happened before in the USA. Imagine going to bed with $100 bucks in the bank and waking up to find you've only got $57 of buying power, and the banks will be closed for a few more days. I wanted to specify that particular devaluation because you don't hear about it. We kind of gloss over that period in history, lest people learn of the gory details and how it was caused ... and prolonged. There are ways to protect yourself for well under 10 grand. No mineral commodities required. It is interesting that you mention market investing vs. having children; I would consider either an investment of sorts...
14.
justxploringComment by justxploring - March 15, 2008, 5:34 pm
Time*treat, the reason I mentioned children is that a single person with no children has a lot more spending power with his/her income. I realize that low income families often get a tax break, but let's say 2 people have the same income, but one has 3 young children who will need braces, college tuition, food, clothes, etc. That's not including the toys you want to buy them for their birthdays or when then graduate high school...and so forth. There is a big difference in how far each salary will go. They might have the spending power, but priorities are different. Any decision a person makes on his/her own about taking a new job, moving to a new state (or even another country) will have an effect on his or her family. When you are single (not including people caring for a sibling or parent) you can take more risks without hurting anyone but yourself.

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