Hard Dollars: Putting the Devalued Greenback to Work

Like declining real estate or stock prices, the diminishing dollar is neither uniformly beneficial nor harmful. Consider Accor North America, Inc., a division of Paris-based Accor, a global hotel operator. When the company needs extra funds, perhaps to make an acquisition, the declining dollar comes in handy. "Taking advantage of the dollar devaluation means that it's cheaper to borrow from our parent than a bank," says Stephen Manthey, senior vice president and treasurer with the Carrollton, Texas-based firm. This is because the parent company's euros now are more valuable than they were a year or two ago.

On the other hand, "we have more pressure on results," Manthey says. "If we're making money, we can't send it back to our parent, because the dollar/euro ratio is so weak. We're handcuffed to the currency." For example, although Accor sold its Red Roof subsidiary in September 2007, netting about $400 million, Manthey since has kept the funds in the U.S. "It's not worth taking the hit. A better solution is to efficiently use the capital in the U.S.," perhaps by making an acquisition, he says.

"In my view, the dollar's decline is both a plus and a minus for us," Manthey says. This is the case more broadly, as well. Exporters typically do well when their currency drops, as their products become more competitive outside their home markets, says Animesh Ghoshal, professor of economics at DePaul University, Chicago. Conversely, importers take a hit, as the costs of their goods or materials rise.

To be sure, the idea that the dollar is falling doesn't always go over well. "People think of a strong dollar like a strong body," says Dean Baker, co-director of the Center for Economic and Policy Research, an independent research group in Washington, D.C. "But, there's no particular virtue in having a strong dollar."