Emerging Currencies Protect Wealth – Power of the Dollar Revaluation

by | Apr 9, 2007 | Archives

Emerging currencies can have a great impact on our investments. A number of friends from Quito visited us here at El Meson over Easter. One is an American who has owned a flower plantation here for years. He told me something very interesting about emerging currencies.

His Ecuador business www.newwholesaleflowers.com overnights flowers anywhere in the world at very low prices. You can have approximately 150 long stem, 50 or 60 cm stems, roses on your doorstep for $110 including shipping. They have 45 varieties of flowers and are starting an organic line later this year. You can call them and speak English at 866-978-0582.

This friend explained to me that even with these low prices, the flower business in Ecuador has been good due to shifts in emerging currencies. One main reason for this opportunity he said is the downfall of the US dollar versus emerging currencies.

Then he shared a fact I had totally missed about emerging currencies …the revaluation of the Colombian peso.

Recent messages have looked at the fact that the US government has treated US financial affairs so badly that countries with emerging currencies like Turkey, Malaysia and Thailand now have larger foreign exchange reserves than the US. See International Investment Power of Currencies.

So this fact about emerging currencies should have been obvious. Yet I missed it. I knew that the dollar has been dropping against major currencies for decades. I have missed how much it has dropped versus some emerging currencies.

Here are some basic economic facts at work in Ecuador that relate to emerging currencies.

When Ecuador dollarized in 2000 there was a great deal of confusion about worth. The place felt like being in a dollar store. Everything cost a dollar. The sucre had devalued from 3,000 sucres per dollar to 24,000 before the currency conversion so no one quite knew the right conversion. Consequently everyone selected the highest price. Shoe shines which had converted to 35 cents suddenly cost a dollar. Tips that had been a quarter were a dollar. A bag of bread rose from 60 cents to guess what? You got it. One buck. This artificial inflation covered every sector of the economy and it has taken a while for the market place to sort this out.

No one really knew the correct price for anything, except eventually the consumer. Over time, prices have worked through the system and impacted the budget of the man in the street. When something has been too expensive, consumers had to say “No, I cannot afford to spend a dollar for a shoe shine”. People said “No, I cannot tip that much” etc.

Then prices stabilized and came down. Now you can enjoy a good meal at a top quality restaurant for $5. Medical costs are very low, transportation is just plain cheap and so too is labor and housing.

Having the US dollar as its currency is actually helping Ecuador because the greenback has fallen seriously versus the Colombian peso. One of Ecuador’s largest competitors in roses and bananas (Ecuador’s number two and three exports after oil) is Colombia.

The five multicurrency portfolios we track have appreciated dramatically in part because of emerging currencies. See more at International Investments Course with Multi Currency Investments and Portfolios

In March of 2007 Colombia’s peso reached its strongest level in over six years.

The peso rose to 2,183 pesos per dollar compared to 2,900 pesos just three years ago. That is a 27% appreciation against the dollar which means that Ecuador flowers and other products have gained a huge advantage. This also means that those who hold currencies other than US dollars see their cost of living in Ecuador drop.

The strong local currency has hurt Colombia’s major exports including flowers, coffee and bananas.

You can see from this graph at finance.yahoo.com how much the peso has risen against the dollar!

Emerging Currencies Graph


This creates some interesting extra opportunities in Ecuador and other emerging countries that we will review in our upcoming courses.

At our upcoming IBEZ in N.C., we will update our latest multi-currency portfolios and look at how to spot strong emerging currencies. Join us May 25 – 27, 2007 at the International Business and Investing Course in North Carolina. Thomas Fischer joins me to update global economics there. International Investments and International Business Course, West Jefferson, North Carolina, May 25-26-27, 2007

Until next message, good investing and business in emerging currencies to you!


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