How Dollar Depreciation Affects Business Owners

The decline of the purchasing power of the dollar generally had an adverse effect; in the immediate sense, for dollar purchasing countries and for businesses that uses dollar a currency in transactions. Compared to other foreign currencies, the dollar has been declining at a relatively steady rate. The purchasing power based on the Consumer Price Index (CPI) and the exchange rate relative to other foreign currencies such as Yen and Euro had shown that there is a decline since August of 2000.

The effect of this on businesses that buy goods and source services to other countries with a relatively more stable currency is that the prices for a fixed amount of goods and services are rising. Compared to the prices back in 2000, the goods now may cost five to ten percent higher in terms of the local currency. This added cost directly translates to a five to ten percent decrease in profit.

The problem is further aggravated by the quasi-recession of the American economy. This results to companies increasing the prices to make up for losses because consumers now have less purchasing power compared to a decade ago.

The same is true for companies that sell their goods on foreign countries using dollar as currency for the prices of their goods. For every deal with a foreign buyer with a relatively stable currency, you are giving a five to ten percent discount per deal in dollar. This now poses the question of will it be safer to adopt a new currency that is more stable than the dollar.

This pricing strategy can be effectively employed; given that you have already established a  price-listing catalogue in different foreign currencies. The task does not stop there, of course. You also need to have an up-to-date price listing so that the rate of fluctuation loss for each of the currency can be minimized. Furthermore, you must maintain a balance of value so that you could see if the effort of pricing in foreign currency benefits your business at all.

You must be ready to train your staff on the changes in the management of money in your accounts. Be ready for complaints and necessary adjustments if foreign buyers do not see your prices to be realistic. Also, you need to set up the payment methods and even the Local Fund Transfer system of each of the currencies that you will use. Using multi-currency software on online marketing is easy; but the LFT for each country will be tricky at first.

On the bright side,  the declining purchasing power of the dollar can boost purchases from abroad. So what you lack in percentage of cost per unit is compensated by the volume of units that you will be selling to foreigners with a more stable foreign currency. This, in turn, can very well replace the loss margin by making up for profit with the increased volume. Just make sure that in the process, a five to ten percent decline would not substantiate the profit per unit. If this is the case, there will be a general capital loss for every unit sold; and that will be bad for your business.

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