Falling US dollar causes concern among Asian exporters

Asian stocks were rocked by the weakening US dollar yesterday on concerns that exporters will see their revenues hit.

In The Straits Times today, Panasonic Refrigeration Devices, the world's second-largest maker of fridge compressors, was reported to be concerned by the fall in the value of the US currency as almost 80 percent of its sales are denominated in it. Its executive director, Raymond Ng, was reported to have said: "We certainly hope that the US dollar gets stronger."

Well, he can hope that the US dollar gets stronger, but he, and many other exporters, had better do something to prepare for the possibility that it gets weaker. The problem is that many businesses have been built around the assumption that the US dollar remains at around current levels or stronger, based on its recent historical value. Unfortunately, such assumptions may not hold.

And that is the problem with prolonged distortions in the value of assets, whether it be a currency or stocks. It causes businesses and investors to plan based on misleading information and unsustainable conditions, and can result in losses subsequently when those conditions change.

In other words, distortions in asset values induce wasteful activity. And that is why bubbles -- as well as undue pessimism -- are bad for the economy in the long run.