The U.S. dollar isn't stretching as far

  • 1998-10-15
  • Rebecca Santana
TALLINN - Ask any tourist or American who is paid in U.S. dollars, and they'll tell you that the almighty U.S. dollar isn't what it used to be.

In less than two months, the kroon has dropped from approximately 14.5 kroons to the dollar, to 13.05 kroons to the dollar, according to Telerate, BNS Information.

Once a bank's commission for trading dollars is subtracted, the exchange rate becomes even lower. At most banks, the exchange rate dipped below 12.9 kroons to the dollar last week. The hapless soul who was forced to exchange dollars for kroons for the notoriously bad rates at the bus station, received only 11.50 kroons to the dollar.

Tourists and anyone paid in U.S. dollars don't look favorably on a low kroons-to-dollars exchange rate and many are hoping the rate goes back up.

The kroon doesn't fluctuate independently. It has been pegged to the deutschemark since June 20, 1992 and fluctuates the same way the German currency does.

"If the deutschemark is going strong against the dollar, then the Estonian kroon is stronger," said Raul Eamets, an economics professor at Tartu University.

"The real question is why the U.S. dollar is weaker to the deutschemark," said Oliver Kangro, a trader with Hansa Investments. The deutschemark, like most European currencies, has been gaining strength against the dollar. Many investors have been pulling their money out of U.S. investments and converting their dollars into other currencies.

"The reason mainly why it's going down is because of the bearish outlook for the U.S. economy," said Ulle Madhiesen, a currency trader at Uhisbank. The decline started Aug. 28, one day before Alan Greenspan, the chairman of the United States Federal Reserve Bank, announced that the bank would lower interest rates. "No one is really keen to have these U.S. dollars."

The exchange rate seems to have bottomed out last Thursday when it dipped below 13 kroons to the dollar. It began climbing up at the beginning of this week and is now trading at slightly above 13 kroons to the dollar.

"Of course, there has been a rumor that the US government may lower interest rates again," said Madhiesen. Though she doesn't believe this will happen, it may force the exchange rate even lower.

No one knows when the exchange rate might regain its previous level, but some of the traders aren't too hopeful.

"I don't think it will happen very soon," said Kangro. The European economies have been relatively well able to weather the economic storms that have buffeted the rest of the world. According to Eamets, this has a lot to do with the fact that the European Union is rather insulated. But as the worldwide financial crisis continues, the chances that it will have a serious affect on Europe are increasing.

Money that is leaving the U.S. economy has to go somewhere, and some of it is beginning to find it's way into the Japanese economy, according to Madhiesen.

"It seems that the picture is changing a lot in Japan," Madhiesen said. The Japanese government appears to be ready to make long-needed banking reforms. The Japanese economy is currently experiencing the worst recession since the end of World War II.