Thursday, January 29, 2015

What is the Allure of the US Dollar?

In the last 5-6 months, USD index has risen a lot in comparison to other major curencies. This has puzzled me, as I analyzed that the QE1 and QE2, should have made the value of greenback to fall. However, on the contrary the vakue of dollar has risen.

I see several reasons for this phenomenon. 

First, it is macro stuff. The economies of major countries is in freefall, and governments all around the world are trying to weaken their currencies so that exports become more competitive.

Second, the political uncertainties, happening around the world, investors ususally try to park capital in US Treasuries. What does one need to purchase treasuries, he or she has got to buy US Dollars (!)

Third reason, and the most important reason that I see, is the dominance of US based companies. When you go outsied, please have a look around. What people are eating? KFC, Burger Kings. What people are wearing? GAP, Old Navy, New Yorker, Tommy Hilfiger, Victorias Secrets. What people are using to communicate? Iphones! What people are using to drive? Fords and Escalades. So, what happens when people spend their disposable income for the products of US based companies. The sales are converted into US Dollars, because, these companies operate in US Dollars.

These are simplistic reasons that at least explain the phenomenon. Thirs reason, has many implications, that I will open the topic later. But, for now, let me state this: Politicians should stop telling people lies, and talk about the whole BS conspiracy theories of US and others. This is plain and simple, US has a system in place that is working, US has a system that has a capacity to unleash human potential.

Just to give a better idea, please see this link to the 1Q,2015 Report of Apple Inc. This is a companye, that is growing like a mad. The reason is that company is investing into both human potential and technology. That shoukd be a lesson for all countries, that are whining about the US currency hegemony. But again, it is always easy to lat the blame on others than make necessary steps to correct real problems.

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