Global Trade – Hostage to the Volatile US Dollar

Brian Kantor says that every financial manager ought to have a multi†decade historical perspective on foreign exchange rates to appreciate how quickly and dramatically rates can change. Managers should understand how domestic politics influences central bank policies and, ultimately, foreign exchange rates, even if unintentionally. Longer†term historical perspectives are a necessary part of a solid decision†making foundation. He provides a summary foreign exchange history from the perspective of the South African Rand (ZAR) and the US dollar (USD). What is most remarkable about such exchange rates, perhaps, is not just the variation around established trends but the tendency of apparently well†established trends to reverse completely. Kantor explains that, since 1970, the global economy has had to cope with flexible exchange rates that do not necessarily trend to Purchasing Power Parity “equilibrium.†This is a highly unsatisfactory feature of the global financial and trading system. The chance of a reintroduction of genuinely fixed exchange rates seems very small, however. Business decision†makers will have to cope as best they can with unpredictable real exchange rates.