Maria and I were driving to the finals of Long Beach Searches For The Greatest Storyteller on Monday when the NPR guy started talking about China devaluing the yuan.
That's the Chinese currency you know. It's their money, and it's just as important as the pound is to the British, the peso to the Mexicans and the dollar to us.
Then Maria asked the burning question. "So if they devalue their money, it means we can buy more, right?"
"We can buy more there," I replied confidently. "If theirs is worth less, than ours is worth more."
"And Chinese stuff here costs less than before?"
"Well," I replied, not quite as confidently, "It does because it takes more yuan to equal a dollar. But you also have to factor in the tariffs, which is why the Chinese devalued the yuan, so now some stuff is about where it was before here, but it's less there, and, well, I'm not sure."
C'mon, I'm an English Lit major.
I do try to keep up with all this economic stuff, though. It's important in so many business stories, and even more important when the town you write about depends so much on international trade.
So I listen to "Marketplace" on KPCC at least once a day, whether I need it or not.
But back to money.
Fifteen or 20 years ago, we enjoyed going down to Baja Mexico for short vacations. Parts of the coastline there are spectacular, and the smaller resort hotels were amazingly affordable.
You didn't really need many pesos — everyone seemed to like dollars. I was a couple of trips in before I discovered how the value of the peso versus the dollar was the real key.
Let's say a Rosarito lobster costs 100 pesos on Monday. On that same Monday, I can buy 10 pesos for a dollar, so the lobster costs $10. With me so far?
On Friday, I go back to Rosarito for another lobster, which still costs 100 pesos. But now I can only get 9 pesos for a dollar, so my $10 only gets me 90 pesos. I need to spend about $11.10 to get my lobster. (It actually costs more, because I can't figure exact change when exchanging currency, so I spend $20 and get 180 pesos, and what am I going to do with a loose 80 pesos?)
So if Mexico devalues the peso, it costs me more in dollars to buy something there. It follows that the Mexican tourist spends less in pesos to visit Disneyland.
In reality, Mexico and a bunch of other countries let the markets decide how much currencies are worth. It's a bit of a crap shoot whether your European trip is going to be more or less expensive, with everything depending on what the Euro is worth compared to the dollar when you go.
China, on the other hand, pretty much controls the value of the yuan. Some Chinese bureaucrat gets up in the morning and says, "I feel like letting a dollar buy 6.8 yuans instead of the 7 yuans it bought yesterday," and that's what happens.
It is a punishment because now a dollar buys less in China. Or rather, the value of a Chevy drops because it takes fewer yuan to buy it. And the Chinese tourist spends less in his own money to get into Disneyland than he did before.
So I think I just convinced myself I was completely wrong when I tried to explain it all to Maria. It's the exact opposite.
Where's a good MBA when you need one?