Here are my observations of a very interesting last week in the world of finance and economics and the implications for Bermuda.
The dollar dominates: the US dollar has reached parity with the euro. The euro currency, established by the provisions of the 1992 Maastricht Treaty, has existed financially since 1999, with paper coins/notes floating three years later. The French franc, German mark, Italian lira, Spanish peseta and many other national currencies disappeared when European national interests finally collaborated to form the European Union.
This collective effort of early start-up countries transcended more than 40 years of planning, persuasion, politicking and agreements among member countries to join the Financial Police.
I remember its launch well as it traded below the US dollar for several years and then reached its highest valuation of $1.60 in July 2008, wondering at the time how a new state currency community could be valued higher than the US dollar, still considered the dominant denominator of the world currency. Today, the euro is used by the population of 19 European countries and many other countries peg their currency to the valuation of the euro.
Inflation exacerbates: the ordinary family is still seriously challenged to plan for unexpected increases in so many general household foods, goods and fuels. Canada, the United States and the United Kingdom all show higher inflation rates ranging from 7% to 9.5%, while consumers in these jurisdictions (and Bermuda) are clearly cutting back on commodities.
Researching various economic opinions, the predictions are somewhat vague. Sources of inflation include food, energy prices, supply chain disruptions, declining post-pandemic supply of workers, consumer demand and geopolitical disputes related to the war in Ukraine and others. The main takeaway is that inflation is unlikely to last for years, could decline by the end of the year and drop suddenly if some of these issues are addressed.
China confuses: various financial media and institutional spokespersons have indicated greater caution towards China-based investments – citing risk exposure, Hong Kong, regulatory and governance changes, Covid-19 protocols, mortgage boycotts citizens and a decline in confidence in the country’s economy and assets.
Gold standard: could commodity-based currencies replace the US dollar as the world’s reserve currency? (Image by Linda Hamilton of pixabay.com)
Alternate World Currency Update: media musings and investor speculation continue around the potential creation and implementation of an alternative global reserve currency (in addition to the US dollar) that would be centered around commodity-based currencies.
This is a fascinating new strategic possibility being considered by other mainstream economies, reminiscent of the quote “whoever owns the gold (add oil and rare earth metals) makes the rules”.
It is worth taking the time to go through the article titled “Why The US Dollar Will Be Replaced As The Dominant Global Currency – Sooner Than You Think”, by Frank Giustra in the Toronto Star. Keep in mind that financial literacy is about understanding the broader economic environment, because what happens globally will ultimately have an impact locally.
A note from Bermuda rolled up: the Bermuda government successfully refinanced over $500 million in debt. It should be noted that the new ten-year Bermuda government note simply replaced the principal value of two redeemed notes.
On a positive note – excuse the pun – the initial offering of the new Bermuda note was oversubscribed five times ($2.5 billion), indicating strong interest in Bermuda’s stable credit quality attributes. .
Further information on the new note is listed on the Bermuda Stock Exchange – which, by the way, is becoming an increasingly influential international investment partner – under BSX Fixed Income Securities, page 6.
What does all of this mean for Bermuda Islanders?
Dollar-euro parity: travel, goods, possibly food imports are cheaper since the value of the Bermuda dollar is pegged to the US dollar. Eurozone tourists may reduce their vacation plans due to rising costs.
Inflation: won’t be leaving anytime soon, but it could end just as quickly as it started – we can hope.
As an interest in Chinese investments by the western world seems to be declining, does that mean less cheap clothes? Maybe landfills will take a little longer to fill up, if the “carry once and throw away” routine becomes unpopular.
Bermuda Debt Refinancing only means slightly higher interest rate payments to foreign investors.
Again, the question arises, why don’t we have a Bermuda bond offering just for Bermuda Islanders? Wouldn’t you like to get a 5% return from our own government, the one that taxes us endlessly. This could be seen as a reduction compared to our other high cost of living expenses.
Dear readers, today I am launching the Bermy (Bermuda) Island Finance blog and newsletter, available for free at www.marthamyron.com.
This blog/newsletter is an important addition to the Moneywise column, my financial primers, podcasts, webinars and financial literacy website. Blogging will allow me to tell the world about Bermuda’s brilliant economy as I go.
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Thank you, readers, as always for reading this column and sending me your supportive comments.
• Martha Harris Myron is from Bermuda, author of the blog Bermy Island Finance – Illuminating All Things Financial Bermuda and The Dawn of New Beginnings: Bermuda’s First Financial Literacy Primer. Contact me at firstname.lastname@example.org