Coronavirus: Low Australian dollar no help to average citizen

Common sense and economics sometimes part company. The benefits of a weak currency is one such example.

The spread of the coronavirus has accelerated the decline of the Australian dollar, which touched an 11-year low this week of about US65.5c.

In the textbooks, this significant weakening should boost net exports, encourage overseas businesses to shift their operations here and consumers to “substitute” towards goods and services produced here.

In reality, the depreciation makes us poorer by kneecapping our purchasing power.

Being forced to holiday at home — one of the supposed silver linings of the recent currency slump — is hardly a marker of prosperity.

But that’s about the only form of “substitution” to “domestic production” available.

Practically all the goods we buy, especially the advanced mach­inery required by what remains of heavy industry, are produced overseas.

There simply aren’t many domestic alternatives.

A weaker dollar boosts education exports, too — assuming students can get here — yet this has been a dubious benefit, fuelling a decline in standards at our universities that have blown the windfall cash on armies of overpaid administrators and “professors”, who are adding precious little to productivity growth.

The number of manufacturing jobs has hovered around 900,000, despite the 20 per cent currency drop.

“Importers, retailers for example, suffer and margins get squeezed, or if the lift in import costs can be passed on to consumers then consumers are worse off,” says Gareth Aird, senior economist at Commonwealth Bank.

“It’s possible to get both a boost to output and reduction in living standards at the same time.”

Sure, resource companies’ earnings, and hence federal company tax collections, will be higher when converted back into Australian dollars. Commodity exports are priced in US dollars.

In a little over two years, the dollar has tumbled by more than a fifth, down from US81c. A decline of that size should increase export volumes by about 6 per cent, according to a 2016 Reserve Bank analysis, and curb imports by about 8 per cent. The combination should lift GDP by about 3 per cent over two years.

Yet since the start of 2018, the economy, far from booming, has been weak, flirting with actual ­recession.

It’s very hard to believe this ­depreciation has improved our standard of living.