I never cared much about the currency markets before moving out of the U.S.
Euro, yen, dollar… those words zoomed by on the bottom of the business news tickers, the numbers behind them always fluctuating up and down, seemingly meaningless in my single currency world.
Then I moved to Japan, and like many American expatriates, I got a crash course on the impact of the currency market on my wallet.
When I moved here almost three years ago, the Japanese yen was hovering around 120, 110 versus the U.S. dollar. Now mid-August 2010, the yen is smack dab in the 80’s. The cost of living for me, and many people who are paid in dollars but live in a yen world, has gone up percentage wise double digits, through no fault of our own except for a weakening dollar.
Michigan native Paula Shioi remembers the days of the 300 yen versus the dollar, when she was in high school a few decades ago. Since then, the value of dollar has done nothing but go “down, down, down,” said Shioi. If the dollar strengthens versus the yen, “then I’d make a lot more money,” sighed Shioi.
But that’s not the way the markets are heading, said Professor Eisuke Sakakibara, at Aoyama Gakuin University.
Sakakibara has the unusual nickname of “Mr. Yen” in Japan, known for accurately predicting the trading level of the yen. But the public started calling him Mr. Yen in the late 90’s, when he worked at the Ministry of Finance, trying to influence the dollar-yen exchange rates through public comments.
Sakakibara continues to make public comments and forecasts where he feels the yen will head. Earlier this year, he predicted the yen would strengthen into the 80’s. I sat down with Professor Sakakibara recently, the yen 85 versus the dollar.
“I think it will head down to 80,” said Professor Sakakibara dispassionately, as I cringed at his words. “And I think by the end of the year, it will break the highest level of the yen in 1995, which is 79, 78.”
Really? Can it be? I asked, secretly hoping he’d take it back.
“Of course it’s possible,” said Sakakibara.
50? 60? Is that possible?
“No, I don’t think so,” he said, much to my relief. Then with the professorial kindness you’d expect from a wizened elder, Sakakibara explained the currency markets are not as important for the impact on American expatriates like me, but as a sign of the world’s changing economy order.
“It’s not necessarily the yen strength we should be talking about, but weakness of the dollar, weakness of the dollar and euro. The center of the gravity of the world economy is now shifting towards Asia. China, India, and East Asia, are gaining strength, relative to countries like the US and Europe. This is the trend.”
It’s why Sakakibara also doesn’t advocate currency intervention, absent sudden and large spikes or dips, because the currency reflects the changing world economy. Sakakibara talked on about his predictions of a common Asian currency, like the euro, for China-India-Japan. A currency that might one day take over the dollar as the world currency, as the U.S. economy loses its dominance in the next century.
Americans living overseas are just getting a front seat to the changing world economy. Personally painful at times, but a change that Mr. Yen says is coming, ready or not.
I love visiting the U.S., but while traveling there I sometimes get a little concerned about its future. I find myself managing down my expectations - preparing for long lines at the airport, overpriced fares for flights and train rides, and spotty mobile phone service. Meanwhile, travel in China gets more efficient and affordable by the day. And I can talk on my cell on the subway uninterrupted.
On a recent subway ride in Hong Kong I kept my phone in my pocket as my traveling companion was U.S. Commerce Secretary Gary Locke. Secretary Locke is in China for several days with a delegation of American executives from the clean energy sector. He's here to promote U.S. technologies, hoping the Chinese will adopt American wind turbines and solar panels.
China is throwing a mountain of money into sectors like green energy in the belief that it is laying the groundwork for superpower status. Beijing has already overtaken the U.S. in renewable energy investments. It's earmarked billions on new airports, rail lines and highways – an ambitious investment in infrastructure that’s an order of magnitude more than anything being committed to rebuild the U.S. Sure, China is starting from a lower base, but it's moving ahead faster than a speeding bullet train to become a more efficient, competitive rival to America.
In a decade, which country will be the better bet - the U.S. or China?
Hong Kong, China - While politicians and business leaders in the United States lobby for a stronger Chinese currency, many of the people who work in the manufacturing belt of southern China quietly hope their government will keep the yuan more or less where it is.
The Chinese government has been controlling the rate of its currency, the yuan, for years, mainly because officials believe a stable currency is key to supporting their exporters. However, now that China is the world's biggest exporter, more critics of Beijing's tactics are emerging in Washington. They argue Beijing is setting the yuan too low, keeping it artificially cheap, a policy that hampers American businesses and contributes to the U.S.'s trade deficit with China.
Yet at this shirt factory in Dongguan, the people are grateful for that stability. China's predictable currency rate has helped tens of thousands of factories to thrive here. The boss at this factory though acknowledges momentum is building for Beijing to loosen its reins on the yuan. He's preparing for the possible changes. His biggest question - how much more are American consumers willing to spend on clothes from China if the yuan appreciates? Because if the currency appreciates, he says he would need to pass on some of the costs.
How much more would you be willing to spend?
NEW YORK CITY – Let's face it: the news these days is pretty depressing. High unemployment, spiraling deficits, lawmakers quitting because the mood is so poisoned in Washington. So, it was a breath of fresh air when I sat down with Jack Dorsey, co-founder of Twitter (@jack) to talk about his new company Square.
You might think that someone who has achieved so much so young might be… well… a little self-important. But I found the exact opposite. When I met Dorsey, he was passionate about his work, polite and generous with his knowledge – basically a really really NICE guy. Maybe it is his mid-western background that keeps him grounded, I don’t know. But it was refreshing.
Square, Dorsey’s new project is looking to take mobile banking to a new level. They have developed software and a small hardware device that will allow anyone will a portable computer or smart phone to accept credit-card payments. If you meet a friend for dinner and have no cash, you can whip out your card and pay them right there on the spot.
In the demo we did, Dorsey charged me $4 for the interview (well $3 and I gave him a $1 dollar tip!).
Banking through mobile phones is not new in Africa, but those of us in Europe and the U.S. are a bit behind. This payment system hopes to change that. Square is beta testing with iPhones now, but plans to expand to Blackberries, Android and laptops and officially launch this summer.
The day I interviewed Dorsey, we met at one of his local haunts, Third Rail coffee shop on Sullivan Street. The two proprietors are guys who left their former jobs in the pursuit of perfect cup of java (and they’ve come pretty close!).
Dorsey and I then talked about Square, the competition (a handful of other companies are also working on mobile payments systems) and tech start-ups and I left feeling… well… hopeful.
Despite all the gloom and despair, New York City is humming with entrepreneurs. Some are chasing their own dream, some working on new ideas that have the potential to radically change the way we live/do business. And there isn’t any economic data that captures that. No monthly government reading that measures innovation. It is important to remember that when you read yet another headline about sub-par growth and lost jobs (even if I am the one writing, or saying, it!).
Driving around the Chinese town of Yi Wu, my crew and I were listening to the radio when an ad came on encouraging listeners to trade in their old TVs and washers for new ones.
"You can get a 13-percent rebate!" the speakers blared.
The government is going all out to promote its rebate programs and get its citizens spending. The manager of Xin Hong Electric, a store selling electronics and appliances, told us his sales were up as much as 30 percent. Not only can Chinese get discounts on new refrigerators, dryers or microwaves but cars too. Car sales were up nearly 80 percent in October compared to a year ago, driven in part by tax breaks and China's version of the U.S.'s "Cash-for-Clunkers" program. China is expected to overtake the United States as the world's biggest car market this year.
At Xin Hong Electric, I was struck by how many people were taking advantage of the rebate. We met up with a paper fan maker who had just bought a new fridge to add to his recent purchases: a TV, an air conditioner, a washer, and a microwave. He told us he had wanted to upgrade his appliances, anyway, and thought, why not do it now and save some cash?
That savers' mentality is said to have contributed to the imbalances in the world economy. Americans have been taking on too much debt and overspending, while Chinese (and certainly many other consumers in Asia) have been saving for a rainy day. Many economists say the government trade-in programs have had some success, but getting Chinese to feel comfortable spending will take a lot more work. They say the government will need to improve its retirement and health care programs so that people don't have to worry as much about paying large potential medical bills. The bottom line is consumers need to feel confident enough in the future to open their wallets today.
How confident are you in your home country's economy?
SINGAPORE – The talk was about global rebalancing. U.S. President Barack Obama arrived in Asia on his first official tour, talking about a "rare inflection point in history". A time where "we have the opportunity to take a different path." A chance to rebalance the model where Asia consumers consume more and US exporters export more.
Chinese President Hu Jintao was among world leaders at the APEC summit in Singapore.
APEC leaders fully endorsed the strategy; virtually every economy in the world does. But look inside the APEC meeting in Singapore, and see the problems of turning this into reality. One of the biggest may be China.
More than two years ago, China began to allow its currency to appreciate against the dollar. By the time the financial crisis exploded, it had risen in value by about 20 percent. The crisis was the signal for China to freeze the exchange rate there at about 6.83 to the US dollar.
That was a year ago. Even China's Asian trade partners are now worried that the Chinese yuan is undervalued against the sinking dollar. So one of the key issues in Singapore was to put subtle pressure on China to unfreeze its currency.
Finance ministers talked about flexible exchange rates, the APEC leaders were expected to talk to about "market oriented" exchange rates - all aimed at prodding China to become a little more "market oriented" in its own exchange rates.
But by the end of the gathering, all reference to market-oriented exchange rates in the final statement from leaders had been erased. There had been debate behind closed doors between the U.S. and China about the statement. In the end China appears to have won out.
The message seem to be China will move only when its ready. And for all its newfound goodwill and push for re-engagement, there's not much the U.S. can do about that.
HONG KONG, China - This week, I found myself at a Chinese restaurant, staring, chopsticks in hand, at a basket of steaming chicken feet. How on earth could two economic powers - the U.S. and China - be fighting over these little claws?
China is threatening to cut off imports of American chicken meat and auto parts - a decision made after the Obama administration announced they would act on an existing World Trade Organization rule and slap a 35 percent tariff on Chinese tires sold in the U.S.
But is this a real threat? The Chinese love chicken feet (a dish translated as "Phoenix talons") - especially the kind from America. Chef Tsui Kam Tong told me American chicken feet are bigger, meatier and tastier than the rest.
U.S. poultry farmers breed larger birds so they can sell more breast meat. But at home, there is no market for the feet (outside of pet food companies) so suppliers are more than happy to sell them to the Chinese.
The claws are deep-fried to make them crispy then steamed so the cartilage is chewy and soft. The feet are seasoned - typically with black beans and barbecue sauce - and steamed again before serving.
To eat chicken feet properly, Chef Tsui explained, you have to chew each mouthful slowly to get the flavor out of the skin and cartilage. And don't forget to suck on the bones, he said.
Chef Tsui prepares 40 plates of chicken feet a day. He said cooking the dish wouldn't be the same without claws from the U.S.
Hopefully, Beijing and Washington won't get bogged down in tit-for-tat trade disputes and lose sight of the bigger issues.
Perhaps, both sides should sit down to a dim sum lunch with this Chinese specialty.
You know how it is –- you’re in a strange city, maybe a strange country, tired, hungry, missing home, it's kind of late. You walk into that little (in my case, Chinese restaurant), there are teeth marks on the chopsticks, the floor is kind of sticky, and on the menu is the house specialty: rabbit face. Not quite what you wanted, but as luck would have it, just down the road you can see it in the distance – the golden arches, sitting high and proud calling to you.
OK, this might be (in my case) China, but you know that somehow, once you walk through those doors, there on the menu will be a cheeseburger, a Big Mac, Quarter Pounder and fries. And for the most part the food will taste pretty much like the Mickey Dee’s on Santa Monica not far from my old apartment in LA.
So, when I buy my Big Mac here in China, it’s just over 12 RMB, or $1.76. When I buy a Big Mac in L.A. it costs around $3.50. The great thing about a Big Mac as far as economists are concerned (wel, the ones at “The Economist” magazine, anyway) is that it's pretty much the same wherever you go . . . two all-beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun.
And that means for economists it’s a great way to compare currencies. Much like the Big Mac itself, it’s not perfect – wages, rents and other costs vary, as well as the size (I have noticed the Chinese burgers a little on the small side). But for more than 20 years the people at “The Economist” have been doing this exchange rate comparison, and – surprise, surprise – they found Asian currencies under-valued, European over-valued.
In the case of China, by about 40 percent undervalued – this is at the far end of the spectrum as far as many critics in the U.S. are concerned. They accuse Beijing of deliberately manipulating the currency, keeping it undervalued. That means exports from China are a lot cheaper, giving exporters here an unfair competitive advantage, they claim.
Imagine if you could go to that McDonald’s in L.A. and instead of paying $3.50 or so for the American Big Mac, you could pay $1.76 for the Chinese version, knowing the ingredients are the same.
LONDON, England – The nomination of Ben Bernanke to a second term as chairman of the U.S. Federal Reserve comes as no surprise. The surprise would have been if U.S. President Barack Obama nominated someone else. The financial markets are satisfied with the job Bernanke is doing. In the middle of a crisis, you don't want to be changing the man responsible for steering the economy back on course.
U.S. President Barack Obama has again nominated Ben Bernanke, left, as chairman of the U.S. Federal Reserve.
Does it mean that Bernanke has done everything right? No, of course not, he hasn't - and he has admitted that he was mistaken early on in saying that the subprime crisis would be contained. But once he recognized how severe the crisis was, he and the Fed acted with boldness and innovation.
Bernanke also came under criticism for, among other things, allowing the failure of Lehman Brothers. But he defends the decision, saying the failure was unavoidable, that a buyer couldn't be found and that Lehman didn't have enough collateral to meet the criteria for a large Federal Reserve loan to stay afloat.
One area of concern is the massive amounts of liquidity the Fed has pumped into the system and whether those will lead to a re-emergence of inflation further down the road.
Bernanke is acutely aware of those concerns, and today pledged to work to the utmost of his abilities to "help provide a solid foundation for growth and prosperity in an environment of price stability."
His nomination to another four-year term still needs to be approved by the U.S. Senate. He will receive some tough questioning at his confirmation hearings, including why the Fed didn't do a better job of supervising the banks that got us into the subprime mess to begin with. The Fed's exit strategy from its ultra-loose monetary policy will undoubtedly be another area of questioning.
But at the end of the day, Bernanke will be reconfirmed. He has steered the Fed and the U.S. economy through unchartered territory. It's a long way to a full fledged recovery, but at this point, Bernanke deserves the chance to finish the job.
But what do you think – should Bernanke be reappointed? What is your biggest concern regarding the Fed as it goes forward?
LONDON, England –It's obvious General Motors is having second thoughts about parting with its European silver. For sure, it may still go through with selling a (large) stake of Opel to Canadian car parts maker Magna and Russian interests - but not on the terms that up to now have been reported in the press.
GM Motors has emerged from bankruptcy –- but what should it do about Opel?
GM Europe is really only Opel (and its much smaller re-badged Vauxhall brand.) Opel could have a bright future when economies recover, moreso now that GM has the power to close plants, move production and do all the things a car manufacturer does to cut costs following its emergence from bankruptcy.
If Opel starts to let in other major shareholders, then GM losses the ability to make those decisions on its own, missing all the potential ("potential" mind you) profits if it calls the market right.
GM would also lose some of its intellectual property, which would end up in the hands of a Russian car maker. Why would GM contemplate that?
Having said all this, GM no longer has the final word on what happens to Opel. Remember, Opel is run by a trust with two GM appointees, two German government appointees (German taxpayers put in billions of dollars to keep Opel operating while GM went through U.S. bankruptcy protection) and one independent member of the trust panel.
GM must be, and is, getting much smaller. But it's now out of bankruptcy, it's temporarily restored a few suspended factory shifts at North America plants (thanks to Cash for Clunkers) and now it's having second thoughts about Europe.
What do you think? Should GM sell a majority stake of Opel/Vauxhall? Or stick with it?
About Business 360
CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.