Off the cuff

When I was involved in managing $1B of foreign currency exposure in a large company and teaching in an MBA program exchange rate dynamics, one concept was loud and clear.

In class I had the students look at the main forces driving exchange rates for all the regions of the world. The outcome was that the strongest countries from an economic and financial point of view had the strongest currencies.

The current debate about the Euro, the Dollar, and the Renminbi should not be about the strength of the Chinese currency. The debate should be about the reasons why the dollar is weak.

I experienced this relationship when I was in Europe. The currencies of the Northern European countries were stronger relative to the Italian Lira. Why? Because those economies were stronger and people were wealthier than the Italians.

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked best market timer in the 12 and 6 months ending 8/20/10 by Timer Digest

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