It seems the United States dollar is in desperate need of a pick-me-up.

Since early 2002 the U.S. dollar’s been declining in value, slipping 25 percent during a five year period in comparison to a group of major currencies. And that downward movement has been picking up speed since the late summer.

Reasons for decline

It was a U.S. credit crisis in August that scared foreign investors. That fear was enough to make them pull a portion of their investments out of the U.S. market and place them in other countries. The move triggered a fall in the dollar’s foreign demand, causing the value of American currency to decrease significantly.

Associate professor of economics Dmitri Nizovtsev explained that while foreign investors have been in a business relationship with the U.S. for a long period of time, a fall in the U.S. dollar is all it takes for them to pull out of the deal before they are affected as well.

“The entire situation is fueled by supply and demand,” said Nizovtsev.

Sept. 18 the Federal Reserve decided to cut specific interest rates in half in an attempt to boost the economy and prevent a recession. The results of a U.S. recession include a widespread decline of the gross domestic product along with a drop in employment and trade, all lasting from six months to a year.

In search of high interest rates, international investors moved on to other countries and the lack of demand for U.S. dollars caused an additional drop in currency.

How it affects students

Study abroad coordinator Tina Williams explained that while the declining value in U.S. dollars doesn’t have a large impact on students who study here on campus, it does in fact have serious effects on students who study abroad.

“Unfortunately, the low exchange rate makes it more difficult for students to afford the study abroad experience,” said Williams. “A short-term program to England can be quite

expensive when the exchange rate is so low, but imagine how much more difficult it is when you are spending an entire semester abroad.”

Williams said that it is this reality that has forced students to make changes in their lifestyle while living abroad. Many are shopping at markets and cooking on their own instead of going out for meals on a daily basis. Cultural activities are centered more around free museums, low-cost movie theaters and on-foot exploration.

Meanwhile, the Washburn direct exchange programs and short-term faculty-led programs offer a lower cost alternative to working with outside program providers. Students participating in WU programs pay WU tuition.

“Faculty leaders work with travel agencies to negotiate group rates,” said Williams. “Students are able to apply for a scholarship to assist them with the cost of travel, leaving them with basically room and board expenses abroad.”

Williams also encouraged students who are planning to study abroad to research their destination and the cost of living very carefully.

“While there are no opportunities to immerse themselves in the study of French, German or Italian outside of Europe, there are many low-cost alternatives to studying in Spain,” said Williams. “The cost of living in any Spanish-speaking country in the Americas is much lower than in Spain, which makes a study abroad program there much more affordable.”

Looking forward

While the dollar decline has been the cause of much conflict, there are those who win from the drop, such as American manufactures and farmers. The weaker dollar has made their product cheaper and, as a result, in higher demand overseas.

This boost in export has helped soften the blow taken by the economy. It alone is believed to have prevented the country from falling into recession because of the combined issues of the housing slump, the credit crunch and soaring energy bills.

In fact, economists think that decreased value of the dollar is exactly what the U.S. needs in order to lower the trade deficit to more manageable levels, as long as the drop is gradual. It is believed that once the trade deficit is lowered the dollar will stabilize. There is talk of the U.S. dollar potentially even rising in value above European currency. However, it is predicted to decrease in comparison to the Chinese yuan.

This month, the Bush administration is scheduled to meet with China and discuss letting the yuan appreciate in value and in turn lower the U.S.’s deficit. There are speculations that China is currently keeping the value of the yuan approximately 40 percent lower than it should be against the U.S. dollar.