I read an insightful article by Geoff Winestock in the Weekend edition of the Financial Review (18-19 February 2012). Geoff’s article is the basis of this blog.
I reckon most people would know by now that our Australian dollar is pretty strong when compared to most currencies around the world. If you didn’t then I’m guessing you’ve been living on the moon. We hear about the currency all the time. A few years ago it was the dam levels. Now it’s the Aussie / US dollar exchange rate that gets plastered all over our newspapers and news bulletins.
Recently, all we seem to be hearing is that someone is getting laid off because of the high Aussie dollar. With this in mind you’d be forgiven for thinking that a rising dollar is bad for our economy. Well, you’re right, it is bad. No one wants to get laid off. In fact, the strength of the dollar is causing all sorts of problems throughout our economy. The industries most affected are tourism, education services and manufacturing.
It’s about time we set the record straight. I want my avid followers to know that there is a lot of good that has come from the rise of the Aussie. According to RBA Deputy Governor Phillip Lowe…the rising Aussie dollar has been the biggest single reason why our standard of living has increased over the past 10 years. Wow, now that’s impressive isn’t it? Thank you Aussie! We can all see our standard of living has increased. We just don’t necessarily think about it. For example, thanks to the Aussie dollar, the world is now our oyster. Those overseas holidays that we could only once dream about have become a reality. Thanks also to the Aussie for all of the goods that we import being dirt cheap. I mean, how cheap have TV’s become? In fact, some things like cars and computers are fetching the same sorts of prices they were fetching 10 years ago. On top of prices of imports coming down, our incomes have gone up by 60% over the same period. The combination of rising incomes and lower costs means that we now have extra money in our pocket to buy other stuff. That folks is what we call an increased standard of living. Think about it…you have more money in your pocket …you’re happy right? When you spend it someone else has money in their pocket so they’re happy too. That doesn’t sound too bad does it?
You may have also heard that Australia is one of the most expensive countries in the world. In fact, a recent UBS study ranked Sydney 7th on the most expensive cities in the world and Melbourne 8th. Ok, so I can hear you saying that more money in your pocket doesn’t count for much if you live in one of the most expensive countries in the world. All those extra dollars we have in our pockets are going straight back out to pay the bloke who’s charging 6 bucks for our daily coffee. Granted, we may be considered a relatively expensive country to live, however, the Deputy Governor reckons that our incomes have been rising faster than our cost of living. In fact, according his calculations, Sydneysiders earn the third highest incomes (net of tax) in the world.
So, I hope you now realise that the rise of the Aussie does have some benefits.
I’m not sure where the Aussie will go from here. A lot of experts are tipping the Aussie has run its race. If it has, the problem now is how to keep increasing our living standards without the help of the Aussie dollar. The only way is to find ways of working smarter (i.e. increasing productivity). Increasing productivity isn’t easy folks. But I will leave that topic for another day and another blog.
For now, cheerio from Dan’s Corner
