Exchange rates linked to everyday spending
You might not think that your exchange rate is linked to your electricity bill, but it is.
The money we spend – and whether we can afford to spend it – has a direct impact on exchange rates. Nowhere is this more clear at the moment that in the USA. For several years, consumer spending was high – America's households were spending more than all of Europe and Japan put together. The danger with this spending spree was that a large proportion of it was on credit. We're now experiencing the same problems in the UK; spending helps to keep the economy strong, but when we're spending money we don't have, stretching the elastic band too tight, it's bound to snap at some point.
Exchange rate chaos?
Chaos Theory has a butterfly causing havoc on the opposite side of the world, and that's frighteningly close to what can happen if consumer spending in the USA can't be shored up by foreign investment in its banks and other financial institutions. The US could head into recession and that would have an economic impact around the world. Not only will consumers be less able to afford goods and services than before – the price of car fuel, gas, electricity and basic foodstuffs is rising – but the banks won't be able to plug the gap because their investors will pull their money out as soon as things look risky. The situation with the sub-prime market in the USA has left many of the country's largest banks with heavy losses already, and perhaps more to come.
Controlling spending
We've reached the point where we have to control spending and, more importantly, borrowing. That's why interest rates have risen over the past year and why lenders are being far less generous with their money. If governments continue to let consumers spend money they haven't got and don't make any attempt to lower the prices of the things we buy everyday, exchange rates and economies will certainly suffer. It's a complex, long-term task and one which investors, consumers and exchange rate experts will be watching closely.
Foreign Currency Exchange Ltd is a commercial currency brokerage based in the UK. We help thousands of clients move hundreds of million pounds across the globe every day. From large businesses to private individuals who wish to send regular payments abroad, you can save money by getting a better currency exchange rate than your bank. Foreign Currency Exchange buys currency at wholesale rates and can help you save money with our fast secure service. For more information contact us now, telephone +44 (0) 20 7989 0000 or email info@fcexchange.co.uk.