Sagging pound has gilt edge for British exports
When Londoner Alan Marin flew to Miami to visit his sister a year and a half ago, he was delighted. ''Hotels, shops - everything was so cheap,'' he recalls. Each pound note in his pocket bought $2.40.Skip to next paragraph
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Today, however, Mr. Marin stays home. Each of his pounds has dropped in value 41 percent against the dollar. It only buys $1.40, because of a dramatic rise in dollar strength and a corresponding fall in most European currencies in recent months.
''The trip is too expensive for me now,'' Marin says.
The sharp drop of the pound, the French franc, and the German mark against the dollar is affecting individual lives in many ways as well as galvanizing financial analysts and affecting the balance of two-way trade.
Despite Mr. Marin's memories, however, the impact is by no means all bad. He can still go to West Europe with relative impunity, since the pound has held up well against other European currencies. The pound, the franc, and the mark have maintained their value against one another fairly well.
A distinct benefit to Britain, which relies heavily on exports to survive, is that British exports to the United States are more competitive. A constant volume of dollars now buys considerably more in Britain. Britain is a net exporter of oil, for instance, and earns more money from oil exports, since oil is traded in dollars.
On the negative side, and not just for travel-minded Britons: Imports of grain, metals, certain kinds of specialty oils, and consumer goods are more expensive. This threatens to boost inflation here. It leads to speculation that the Thatcher government may have to boost interest rates to strengthen the pound.
But ''on balance,'' says David Kern, chief economist of Britain's National Westminster Bank, ''I suspect Britain comes out ahead. Imports cost more, but Britain depends so much more than the US on its international trade that cheaper exports are a great advantage.''
The dollar has been rising in Europe, according to financial analysts, because confidence in the strength, flexibility, monetary policy, and stability of the American economy has rarely been higher - despite high US budget deficits. Although the dollar has receded slightly in recent days, a long-term rise is expected.
''The dollar has assumed the role of gold as the haven-asset, the refuge-asset, for investors,'' Mr. Kern said. ''Yes, the budget deficits are worrying. But America has so many other assets.''