Custom «Comparing Currencies» Essay Paper

Introduction

USD has enjoyed almost unchallenged status as the main international currency, and this status continues due to the expansion of the financial market. However, many other currencies have achieved international recognition in the last two decades or so, which has helped lessen the USD’s status as the main currency of international trade. The emergence of euro, pound sterling and Japanese yen reduced the grip on the international trade executed by USD. It has resulted in the expansion of the financial market leading to the growth of other currencies. Indeed, they have continued to grow while others are still emerging. However, the impact of USD on Fijian dollar, Colombian peso and Dominican peso remains quite considerable. Therefore, in assessing these three currencies the performance of USD is very important (Armentrout, 1996).

Colombian Peso

Colombian peso is the basic currency of the Republic of Colombia which is denoted by COP or less formally COL$. The strength of the Colombian Peso has increased considerably in the last decade and is nowadays acknowledged in the world currency trading. Before the turn of the century, peso was not much valued and recognized as it is today, however, in 1999, a decision was taken which dramatically changed the fortunes of the currency. The decision was taken by the Central Bank of Colombia and implied letting the Peso float (Cohen, 2012). The expected impact was meant to allow the Central Bank intervention in the exchange market to be limited to achieving its balance of payment goals and inflation targets, in turn, providing a more stable exchange rate environment. Last year Colombian peso has been appreciated by over 8% against USD. It is a proof of the growing value of peso which is an indicator of the state of the economy in Colombia.

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Indeed the Colombian economy has been boosted significantly through the appreciation of peso, and today it is considered to be one of the emerging markets in the international currency market. The country boasts of a population of over 45 million, ranking second in South America and 30^th in the world. However, after overcoming a deep economic and financial crisis at the end of the nineties, the Colombian economy has risen to achieve stability and word recognition by both external and structural factors. The economy has followed a path of higher growth based on greater export and investment rates consequently proving to be more resilient to external shocks than previously (Frieden & Stein, 2001). The strength of the economy, therefore, serves as a testament to the strength and growth in the value of the currency as a legal tender. The changes in the currency have had an impact on the overall state of the economy.

The changes in the value of the currency usually have wider. It is highlighted by Colombian peso changes of which managed to impact the state of the economy. The appreciation of the Colombian currency has resulted in an increase in the growth rate of the country’s economy. Indeed, the economic growth that has been experienced by Colombia has exceeded the average growth rate for Latin America and the Caribbean. The country has been recognized by the World Bank as one of “the best pro-business reformers globally” in the recent years. Colombia has a 130 billion economy; it is a world leader in the production of petroleum, coffee, flowers, and textile. The economy is growing at 6.9% annually, which is faster at two full points than the average of Latin America, which stands at 4.9%. This growth means that the Colombian economy can be listed to the group of upper-middle income countries.

The appreciation of peso has led to increased international trade in products that the country manufactures. Colombia has rich mineral deposits as well as energy resources and possesses the largest reserves of coal in Latin America. It also has the second highest hydroelectric potential (after Brazil). The state also has significant amounts of emeralds, gold, platinum, nickel, and silver at its disposal. Despite workplace inequalities, high unemployment rates, and narcotics trafficking, the country has had positive growth of GDP over the past 3 years facilitated by improvements in rising commodity prices, domestic security, and pro-market policies in the country. The Colombian peso has remained substantially stable compared to other international currencies as shown by the table. It has been facilitated by sound financial policies which have allowed the country to resist a lot of economic woes that many other countries have also undergone in 2007-2010. It is the recession which attacked most countries leaving a major dent in their economy. The Colombian economy, however, was more successful in resisting the damage of the recession and thus sustained the growth that peso had been experiencing (Cohen, 2012). This stability figures are shown in the table below. It also shows the target the Colombian Central Bank has set in regards to the international currencies.

Comparison with the U.S. dollar reveals similar trends as it has been affected significantly by the recent recession. It is this weakness of dollar which can be attributed to the growth of peso in the last few months. Lower positions of U.S. dollar have had an impact on the trade between two countries. This is because weak dollar means that it is cheaper for U.S. businesses to import from the country where dollar is strong, thus, foreign goods and services cost less. This translates into increased imports between the U.S. and Colombia which has facilitated the growth of Colombia’s economy due to increased amount of domestic products on the international market. A comparison between the U.S. dollar and the Colombian peso shows a steady appreciation of peso against dollar which lends credence to increased recognition of peso as one of the emerging currencies on the international market. The weak U.S. dollar has also led to increased tourism activities in Colombia. It is cheaper to travel abroad since the tourists will be getting more for their U.S. dollars. This has increased the growth of the country’s economy which has been boosted by the influx of capital brought into the country by the tourists, thereby leading to sustenance of economic stability.

However, the weak U.S. dollar is also of benefit to the U.S. as it means that when other currencies are strong enough, relative to the U.S. dollar, international firms will be able to purchase more products from the U.S. which results in export increase. It will lead to diversification of employment opportunities in the country as it will have to employ more people in manufacturing of the products that are demanded by the firms. Creation of employment opportunities, therefore, reduces the rate of unemployment in the country aiding the growth of the economy. In this regard, it is difficult to assess whether the U.S. is actively pursuing a weak dollar economy in order to combat the effects of the recent recession which left a large dent in the country’s economy (Fourçans & Franck, 2003). However, it has to be noted that a weak dollar translates into increased prices of commodities to consumers making the cost of living high and affecting the economy.

Consequently, the growth of the Colombian peso has to be attributed to proper monetary policies and sound financial plans which have enabled the growth of the economy. Peso can be regarded as one of the world emerging currencies as it continues to establish international recognition and acceptance. Perhaps, the aim to be recognized as a world currency is still a long-term one, it is of critical importance that the country remains stable and pursues strong economic policies in order to achieve this goal.

Dominican Peso

Dominican peso is another currency which experienced positive changes in the last few years. This is the state currency of the Dominican Republic and is denoted by DOP and often seen as RD$ for distinction from other pesos and dollars. The performance of Dominican peso against dollar has always been unsteady and at times unpredictable. However, the fortunes of the currency have continued to change for the better as tighter contact has been established between two countries. The increased trade has seen the stabilization of Dominican peso as it depended upon the performance of the dollar.  However, peso still continues to depreciate compared to dollar, although earlier the situation was different.

In 2000, the Dominican economy captured the attention of the international market and was acclaimed as having the fastest growing economy in Latin America and the Caribbean region. The growth of the economy started in 1996-2000, and it grew at an annual rate of 8%. Led by tourism and duty-free assembly plants, profiting from making clothes and other goods for the U.S., the economy continued to develop in 2001 as it reported a 2.7% growth despite the turbulent events that were facing the world at that time (Frieden & Stein, 2001). This rate was 5 times higher than most of the other Latin American countries. However, events took a dramatic turn for the economy as well as peso in particular between 2002 and 2003. A banking crisis put the economy into a tailspin leading to the DR losing half of its value against the US dollar. Over the years, the value of peso against USD on the stock market has been rated as 17 pesos for $1. In 2010, however, it dropped to 32.5 pesos for $1 and today it is trading at 50.2 pesos for $1.

A number of steps have been taken over the course of time to revive the falling currency since 2005. At the end of 2006, the Gross Domestic Product grew by 10.01% in real terms reflecting the robust economic recovery that was taking place. At current prices, the GDP measured by economic activity increased by 15.6%, these also reflecting a high correlation between nominal GDP growth and monetary issuance, which increased by 17%. The economic sectors which have acted as the driving force behind the economic recovery include agriculture and livestock, mining, local manufacturing, construction, energy and water, commerce, tourism and hospitality, transportation storage, etc. Similarly, the performance of imported goods and multiple service bank loans portfolio have also been facilitating the recent growth in the Dominican economy (Luca, 2000).

The Dominican Republic is primarily dependent on agriculture, trade, and services including tourism. The country has an estimated population of about 10 million, with over 70% living in the urban areas and another one million living abroad, mainly in the US. The relations between the US and the Dominican Republic extend to business transactions in the import and export sector. The United States is the leading foreign investor in the economy of the Dominican Republic with over 29% of investment. Trade relations between two countries have ranged on tourism, export and import trade transactions. In regards to the imports, the Dominican Republic imports virtually all consumer products being an island country. It is estimated that up to 65% of the products consumed in the country are imported from other countries. The US provides over 47% of the imports which include petroleum oil, cars, medicaments, petroleum gases, maize seed, and telephones among others. In the export sector, the Dominican Republic sells over 55% of its products to the U.S., these include medical, surgical, and dental or vet instruments, bananas and plantains, cigars, and jewelry made of precious metals. The country, being a leading producer of cocoa, coffee, ferronickel, gold, silver, sugar and textile goods in the area, also exports them to the U.S.

The changes in the value of the currencies have affected the trade relations between two countries. Over the recent months, US dollar has been considerably weak which has led to increased exports of the Dominican products to the US as they are cheaper. This has facilitated the growth of the economy and the provision of cheaper products to the consumers. The increased exports have led to increased job placement in the country. When comparing two currencies, however, Dominican peso still has a considerable distance to cover in order to be able to compete favorably at the international currency market. The table below shows the value of peso as against dollar which currently stands at RD$ 41.05 to $1. This indicates an appreciation due to the weakening USD.

Fijian Dollar

Fijian dollar has been the recognized currency for the Republic of the FijiIslands since 1969 and is recognized by the FJD initials. The growth of Fijian dollar is highlighted by the decision made in 2009 to devalue the currency as against USD. It was dictated by a foreign exchange crisis which led to the devaluation of the currency by over 18%. It related to dollar by 0.57% before the devaluation and the figure dropped to 0.45% after the devaluation. However, the currency has started stabilizing in the recent past due to the problems facing major currencies in the world.

Since gaining independence, the country has adopted an economic strategy largely based on protection of domestic industries and a large public enterprise sector. This strategy has had mixed results in its aim of facilitating the economic development of the country. The most significant failure included its inability to deliver a growth rate sufficient to cover the increasing domestic demands. A number of reforms have been introduced in order to aid in the economic developing of the country. However, these strategies have always failed due to a number of circumstances that have hindered their implementation. For instance, politically Fiji has been hindered by the king who cannot support the proper development of the economy (Lien, 2010). The country has undergone a number of coups, which has aggravated the already complicated political situation (Garner,, 2012). Similarly, poor financial and monetary policies have hampered the development and growth of the economy.

The country has a small population of over 800,000 which has been growing at a considerably slow rate. The growth of the country’s population has been greatly hampered by the increased political and economic turmoil that the country has undergone. These hardships have resulted in increased emigrations of Fijian residents to other countries as they seek better opportunities. The population has grown at the rate of 3 to 4% which is a fair reflection of the situation even in the neighboring countries. Fiji is primarily an agrarian state with agriculture, forestry and fishing providing sources of revenue to the country (Knapman, 1989). Sugarcane plane is a mainstay of the Fijian economy and a backbone of the agricultural sector of the country. The sugarcane industry provides employment to almost one quarter of the country’s labor force. Over 75% of workers of the sugarcane plants are small-scale farmers who do not have proper farming techniques to yield high quality production. This has impeded the growth of the economy as poor farming techniques are used consequently resulting in the failure of the Fijian industry to reach the international market (Rother, 2009). The tourist industry is another critical sector of the economy which has been growing at a fairly faster rate. The sector has grown to become a major contributor to the country’s economy through foreign exchange income.

The value of Fijian dollar can be comprehensively determined by taking into consideration the values of its major trading partners. The major trading partners of Fiji are the U.S., Australia, Canada, New Zealand, Japan and Europe. Therefore, in assessing the value of Fijian dollar the values of all these currencies become important points of reference. However, for the purposes of this paper, the value of Fijian dollar against that of the US was appreciated as a result of the depreciation experienced by the latter. This appreciation has led to increased export activities as more American companies have found it cheaper to purchase products and services from Fiji, thereby leading to increased economic growth (Sturton, 1989). A weak U.S. dollar, therefore, contributes to the strength of Fijian dollar. The table below shows the value of Fijian dollar compared to U.S. dollar.

The trading relations between Fiji and the U.S. have also facilitated the growth and stability of the Fijian economy. Fiji imports mineral products, machinery, mechanical and electrical appliances, vehicles and aircraft parts from the U.S. In its turn, it exports precious metals, wood, planting materials, and textile and vegetable products to the U.S.