Dollar for dollar

I have a short bit in the new on-line newspaper, Business Spectator, today. It is on the meaninglessness of US dollar parity [over the fold].

Parity blues

Joshua Gans, professor of economics, Melbourne Business School, blogger at economics.com.au

31 Oct 2007 6:25 AM

There are two types of people in the world: those who think that the Australian dollar meeting parity with the US dollar has implications for the economy and those who don’t. The former are the same sort of people who would buy an iPod if it was priced at $199 but not if it was priced at $200. Looking at the number of ‘9’s’ around the place, there are apparently many people like that.

The AUD reaching USD1 is no more a milestone than it breaking through the 90 cent barrier or any other round number; that is, no milestone at all. It is not a measure of national pride in much the same way of being below parity is no indication of national disgrace. When the Canadian dollar reached parity with the US dollar a few weeks, back for the first time in three decades, nothing happened. Sure there was consternation from Stephen Colbert who worried that this said “that George Washington was no better than the duck on a Canadian dollar coin.” But the economic consequences had little to do with this than the five year downward depreciation in the greenback.

To be sure, parity does make calculating currency conversion easier; although not that much easier when the AUD was about 50 US cents; you could just double the prices there. I was in Japan recently where the Aussie cent is worth about the same as Yen. You only have to add a couple of decimal points to work out the incredible amount you still pay for fruit there. But in these days of, well computers and calculators, business can cope of currency differentials. What is more difficult to cope with is currency fluctuations and that is not going away any time soon.