Trouble Looms With Existing Exchange Rates

Friday October 16, 2009

Everyone is well aware of how long and how deep the current recession has been.  And there is no real end in sight to it just yet either.

 

But it would appear that the exchange rates currently in place in the currency markets are not helping matters either.

 

The news which has come out of the IMF – the International Monetary Fund – recently has been something of a ‘good news, bad news’ situation too.  It would seem that while we are not near the end of the recession itself, we are at the beginning of the end.

 

That’s the good news.  The bad news is those currency exchange rates.  Apparently the IMF doesn’t feel they are at a good enough level at the present time to usher in a faster end to the recession. 

 

Of course the very nature of exchange rates is a very up and down affair.  When an unusually low or weak exchange rate is experienced by a particular country, it makes it more attractive for other countries to buy goods from that source.  Similarly tourists will find it a desirable place to visit because their own money will go further.

 

But it isn’t such good news for those people living in that country on a day to day basis.  A low exchange rate can affect businesses and jobs.  It also means that particular currency doesn’t go anywhere near as far in other ways and in other countries.

 

It’s very much a balancing act in which one side of the scale must go down as the other side goes up.  And at present the scales are too uneven to give us much to look forward to in terms of a speedier end to this recession.

 

So when will things stabilise?  And when could we expect those scales to find a more even balance?

 

The answer is that we simply don’t know.  Different governments have different ideas on whether it is wise to step in and give some kind of support to their own specific currency.  But even if help is given in some way, it won’t necessarily have the results that are wanted. 

 

Clearly something needs to change for this form of stalemate to end.  The recession will come to an end in time anyway; what matters is how long it will take.  And no one wants to be going through it for any longer than is absolutely necessary.

 

It is ironic then that the IMF believes the beginning of the end of this recession has come earlier than it may previously have expected.  Instead of having a long drawn out recession followed by a speedy recovery, it seems we are in for a shorter recession and a longer recovery.  Does this make any difference?  Perhaps it is a moot point, since this is the situation we are in.

 

The World Economic Outlook from the IMF takes place every six months, so it will be interesting in any event to see how much it changes before they release the next one.  Let’s hope for something a little more positive by then.

 

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