Friday, May 30, 2008

Economist's Notebook: Exchange Rates

In my international economics class right now, we are talking about exchange rates - what determines them and what their effects are.

Well, I am in Bellingham, Washington to give a talk this afternoon at Western Washington University and the effects of the recent exchange rates are quite visible here - it is quite amazing. Bellingham, being about 20 miles south of the Canadian border on I-5, is over-run with Canadians. They fill the restaurants, apparently pack the malls and the long-term parking lot the little airport here was abut half Canadian cars.

Why such an invasion? Well, here is a picture that tells the story. This is a graph of the Canadian dollar to US Dollar exchange rate. So in 2003, a Canadian Dollar would buy about 73 US cents, now it buys a full US Dollar.

The Canadian dollar has appreciated rapidly against the dollar in the last year. For Canadians, US restaurants, stores and airline flights in US dollars are suddenly a bargain. Here is an easy example. Look on almost any book you buy here in the US. Mine for this trip is the Swedish police procedural The Dogs of Riga by Henning Mankell, a book in the Kurt Wallander series (great series, by the way). The cover prices are $13.95 US and $16.95 Canadian. Well with the US and Canadian Dollars trading one for one (as of today) this book is $3 cheaper if you are a Canadian and buy it in the US. It is no wonder all these Canucks are in Bellingham!

1 comment:

thg said...

What would happen if the United States or any other economically important country made a rule that all imports should be paid in the currency of the exporting country in order for it to be a deductible expense?