Although University tuition rose sharply last year, it may have actually decreased for some international students due to the U.S. dollar’s depreciation against many major currencies, especially against the euro.
The dollar has slipped more than 20 percent and 11 percent in the last year against the euro and Japanese yen, respectively.
Pietro Binchi, who will enroll next year as an MBA student, is a citizen of Italy, which belongs to the European Union and adopts its common currency. He said the euro-dollar exchange rate is much more advantageous for him at its current rate of $1.10 per euro to its lowest level at 83 cents per euro.
Economics Prof. Andrew Coleman said the possibility of war with Iraq has contributed to the recent weakness in the dollar.
“Normally, when a country goes to war, it tends to have high inflation and in the long run, high inflation can lead to a devalued currency,” Coleman added.
As war against Iraq seems to draw ever closer, the dollar is being pushed down. Last week alone, the dollar gave up 1.9 percent against the euro – the largest weekly decline since November.
Jim O’Sullivan, an economist at investment bank UBS Warburg, said the major cause of the dollar’s weakness is the huge U.S. deficit in the current account – a measure of the total money circulating between the United States and other countries.
“The current account deficit is over 5 percent of the (gross domestic product), which is at an all-time high,” O’Sullivan said.
But when the dollar depreciates, exports from the United States will become more competitive overseas because they are relatively cheaper than before.
“It makes imports more expensive, and that should help the U.S. economy because it leads to U.S. consumers switching to domestic goods from foreign goods,” O’Sullivan said.
Partly due to the weakness in the dollar, the trade gap between the United States and other nations – which makes up the largest part of the current account deficit – narrowed sharply in January when exports rose by 1.6 percent and imports decreased by 2 percent, according to a report released yesterday by the U.S. Commerce Department.
Although the dollar regained some losses yesterday, O’Sullivan said the dollar will continue to weaken and UBS Warburg’s foreign exchange team is forecasting that its value will be at $1.15 per euro by the end of this year.
Even though the depreciation of the dollar will help lift the worries about deflation in the country, O’Sullivan said, it could still signal problems with the economy.
“If the dollar is declining because people are more negative on U.S. financial markets, then people will be pulling out money from the financial markets, and that’s a negative effect on the economy,” he added.