art with code

2016-11-29

Exchange rates

If you're looking at nominal GDP figures for the last few years, you'll notice a weird thing. Most of the world seems to be in a slump. Canada's GDP has decreased by 20%, UK's GDP has decreased by 15%, Germany's GDP is down by 10%, Japan, same story. Even fast-growing economies like South Korea, Armenia, Vietnam and India have stalled at their 2014 levels.

There are a few exceptions though. The US is still growing as normal. China and Hong Kong as well, though China's had a slight dip in its growth rate. Not to be outdone, Grenada's growing at a good clip, ditto for other East Caribbean states.

What's going on? Here'a graph that explains things:


The USD has appreciated like crazy against other currencies over the last couple of years. If your currency is the USD or fixed to the USD, everything seems to be as usual: economic growth is steady, things are normal, all is well. Imports from other currency areas are cheaper, but your exports are getting more expensive.

If your currency is tracking the US dollar, but isn't fully fixed to it, you'll see something like China. A slowdown in growth, exports get more expensive, imports are a bit cheaper. Enough to get some downcast news articles going on.

If your currency is floating free against the dollar, the sky is falling. Your GDP has just crashed by 20%, your economy is shrinking like a dried grape, the good times are behind you and all that's left is a grim meathook future where you hunt cockroaches and scavenge carrion left behind by the radioactive mutant wolves. On the plus-side your exports are cheap and popular.

But, well, this has happened before. Here's the chart from 2000-2002:


And here's what happened over the next two years.


What goes up, must come down. Another example of this was around the 2008 crash. First the USD depreciated 25% against the euro over two years. Then the sub-prime crisis hit, and the USD appreciated 25% over two years.

Exchange rates go up and down. There are usually some reasons for why, but in the long run reversion to mean takes over. If the USD gets too expensive due to policy differences, either the US changes its policy to make the USD cheaper, or other economies change their policies to make their currencies more expensive.

Even if there is some real "the entire US economy figured out how to 1.5x the productivity of a person, therefore the rest of the world is doomed"-thing going on, it's not a lasting effect. The rest of the world is going to do the same thing. If you've got super good 3D printers and robots and AI and automated manufacturing and design to make the 300 million people in the US as productive as 1.4 billion Chinese, what's to prevent the Chinese from using the same tech and becoming as productive as 6 billion non-augmented Chinese. If you force-multiply people, you force-multiply people.
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Built art installations, web sites, graphics libraries, web browsers, mobile apps, desktop apps, media player themes, many nutty prototypes, much bad code, much bad art.

Have freelanced for Verizon, Google, Mozilla, Warner Bros, Sony Pictures, Yahoo!, Microsoft, Valve Software, TDK Electronics.

Ex-Chrome Developer Relations.