The Global Implications of a Rising US Dollar

There are a lot of great things to be said about the United States economy right now. As US markets celebrate their longest ever growth streak, economically, a lot of Americans are satisfied with their financial well-being. Unemployment fell to a 50-year low, falling from 3.9 to 3.7 percent in September, as the US economy added another 134,000 jobs and companies have been steadily announcing payroll increases. In the third quarter, wages grew 3.4 percent, the fastest pace in over a decade. Amazon shocked the country by announcing its new $15 minimum wage for US workers, a policy that will go into effect next month, and is yet another sign of the best labor market in over a decade.

In the midst of this positive growth, the US Dollar continues to perform well as we enter the fourth quarter. US treasury yields are their highest since 2011, the dollar hit an 11-month high against the yen, and even the pound slipped to below $1.30 as the Dollar continues to sneak up. This means many Americans will enter the holiday season not only more eager to spend, but perhaps more eager to travel, as the Dollar’s value continues to rise globally. While spelling great news for US citizens, what does this mean for others around the world? Specifically, emerging markets across the globe are very aware of the recent trend of the Dollar, and in many cases, are facing potentially severe implications if the rapid growth continues to be a trend.

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Currency exchange rate sign in downtown Buenos Aires, Argentina, where the Argentine peso has fell significantly in 2018.

One key indicator of economic and monetary prosperity is the Federal Reserve benchmark interest rate. The Fed tends to raise rates during a strong economy to contain excesses and make sure the economy continues to grow stably, and tends to lower rates in times of economic struggle, in an effort to boost spending and borrowing. Currently sitting at a range between 2% and 2.25%, the Fed raised the rate for the third time in late September, and plans to raise it again sometime in December, and the plans don’t stop there. In June, when the Fed laid out its long-term objectives, it tentatively planned three more interest rate increases for 2019, and one more for 2020. The rates can also help ensure inflation rates are steady. The current inflation rate of 1.9% is very close to the Fed’s target of 2%. This is a very significant outline, as it tells us that the Fed predicts the US’s growth to continue through 2020.

 While signaling stability for the US Dollar, the Fed’s interest rate increases can negatively affect foreign markets, especially those who have borrowed heavily in US Dollars. As it stands, the US is still, by far, the dominant global reserve currency, accounting for 63% of global reserves. Many countries around the world issue Dollar-denominated debt, and debt levels become exaggerated with the rise of the Dollar. While interest rate increases work in strong economies such as the US’s, the same increases constrain countries where economies are not doing as well. It hurts policy options in regions with tight financial conditions and high trade tensions. While the US market enjoys a growth streak, the markets of emerging countries have on average been declining throughout 2018.

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The Indian Rupee hit an all-time low this year vs. the US Dollar.

Emerging markets, which often rely heavily on foreign investment, will be hurting the most. In emerging Asian markets, the Indonesian rupiah hit a 20 year low in 2018, and the Indian Rupee hit an all-time low vs the Dollar, hitting 73.77. In South America, the Argentine Peso, which was placed at 18 vs the US Dollar in 2017 and was relatively stable, rose to over 40 in 2018. The Brazilian Real hit 4.15 this year, while being in the low 3s during 2017. In the Middle East, the Turkish Lira, which has been in the 3s for the last half decade, has reached above 6, and in Africa, the South African Rand has increased to over 15 despite being as low as just 11 last year. While these are some of the more extreme examples worldwide, and while there are plenty of other internal issues at play, it still marks a global trend of struggle against the US Dollar. The reality is, foreign investors are crucial to the success of emerging economies, and investors become more and more reluctant to invest abroad in times of such volatility.

This brings up an intriguing ethical debate, that is, should we, as Americans, really care about the economic struggles abroad? After all, with turbulence abroad, investors have turned to the relative stability and strength of the US markets, increasing investment in 2018. With our government’s “America First” policy, jobs have finally been increasing again over the past few years. Despite this, I worry about the tough implications that emerging economies are facing right now. Worldwide market collaboration and investment drives innovation and success and can move different people and cultures together forward Of course, the reality is a lot more complicated, but I still see success, especially in emerging markets, as a positive thing, and it is important to keep in mind that US markets affect these markets more than we think.

 

 

Sources:

https://www.cnbc.com/2018/08/31/argentina-peso-sell-off-stops-as-investors-await-governmnet-plan.html

https://www.thenational.ae/business/economy/us-dollar-here-to-stay-as-main-reserve-currency-says-moody-s-1.770003

https://www.thenational.ae/business/money/us-dollar-takes-centre-stage-in-the-financial-universe-1.728368

https://www.indiatimes.com/news/india/indian-rupee-is-not-alone-here-are-5-worst-performing-currencies-in-the-world-352157.html

https://www.wsj.com/articles/the-tricky-part-of-the-feds-next-rate-increase-1536831001

https://www.businessinsider.com/how-the-fed-raises-interest-rates-2017-12

https://www.ft.com/content/bcfa7bf0-b4a1-11e8-bbc3-ccd7de085ffe

https://www.scmp.com/comment/insight-opinion/united-states/article/2167616/how-stronger-us-dollar-and-higher-crude-prices

https://www.theguardian.com/business/2018/oct/04/soaring-us-dollar-threatens-trouble-for-emerging-markets

Startups and Streaming: An Interview with the Founders of Beathey

The startup culture in Argentina is still growing, but Julian Sorsaburu, CEO and one of the founders of Beathey, feels they are entering at just the right time. Based in Buenos Aires, Argentina, Beathey is a music streaming service, record label, and booking agent for emerging electronic music artists in Argentina. I have been interning with Beathey for a few weeks now here in Argentina, and I recently had the chance to sit down with the three founders, Gabriel Santana, Miguel Warlies, and Sorsaburu, to discuss not only the company’s objectives, but also the music culture and startup culture that is rapidly expanding in Argentina.

Beathey was born in 2017, and each founder stressed that it is a company tailored towards the artists. Sorsaburu feels that for music artists today, Beathey offers unique services. “Today music is more accessible, and there are more opportunities for artists to be discovered,” Sorsaburu said, adding, “There is a need for the music industry to change, and to reinvent itself, which is good for emerging artists.”

A Changing Industry

In recent years, the music industry in both Argentina and the United States has seen positive growth, with most people pointing to music streaming as a main driver of this growth. Cary Sherman, CEO of Recording Industry Association of America (RIAA), expressed similar sentiments as Sorsaburu, saying, “The pace of change embraced by record labels is staggering. Just two years ago, digital downloads was the largest format, and streaming was only beginning to take hold. Fast forward a few short years, and the business is already dramatically different.”

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Argentina music streaming saw $43.7 million (USD) revenue in 2017, and 2018 revenue is expected to exceed $50 million. Average revenue per user was $5.78 last year and will likely exceed $6 this year. While this is a far way off from US streaming numbers, which by far leads the world with a staggering $6.4 billion in expected revenue for 2018, both predicted growth rates are nearly identical, with Argentina at 5.4% and the US at 5.5% for 2018-2022.

What do these numbers mean for music? For one, it means upcoming artists are more likely to be discovered. Today, streaming service users have access to millions of songs, with many of them offering clever algorithms to help you discover new music that you’ll like. Despite this, the Beathey team feels that their model helps upcoming artists in a way that the bigger streaming services cannot.

Beathey: Fostering the Music Community

I asked the founders of Beathey to describe their company, and Miguel Warlies said, “Beathey is a streaming platform for emerging electronic music artists. This year we launched ‘Beathey Recordings’ because of the possibility to find new talents, and to bring these talents to the world.” Beathey Recordings is expected to have 30 tracks by September, all from the most talented artists discovered on the streaming platform. Sorsaburu added that Beathey also produces events and is a booking agent for artists as well. Incredibly, Beathey’s model allows its artists to retain 100% of the music rights and 100% of income from music sales.

I asked how their services differ from those of a traditional music streaming site, and Sorsaburu explained, saying, “The major difference is that the majority of music platforms for artists require you to be a recording artist. If not, you have to work with an organizer to be added to platforms or events. Here, the artist can have a channel to increase his or her material, and to be able to keep all the rights. The artist can work with our system to have the possibility for other people to know them and support them, without the intervention of a middleman.” An emerging artist at Beathey can not only be discovered easier but has more opportunities. Traditional record labels in the music industry typically only discover new artists with big investments and with a big team, whereas Beathey’s platform supports any artist.

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For non-artists, listeners can stream music for free, or, subscribe to Premium for $10 a month. This allows users to participate in their Vinyl Contest. The Vinyl Contest allows users to vote for their favorite electronic tracks, and the top 4 songs with the most votes every 4 months will have their own vinyl produced by Beathey, and all Premium members will receive copies. Premium members also receive benefits at events and on their online store. Of course, you must also be Premium to be able to post your own tracks to the site. Currently, over 850 tracks have been uploaded to Beathey, and there are over 1,000 registered users and 250 subscribers.

The thing the Beathey team seemed most proud of was their sense of community and collaboration. “We are a community that is talking about collaborative concepts, because the community that we have can begin to decide who has potential,” Sosaburu added. He feels the existing music industry is not as collaborative, and that they can use the community they have formed to analyze information and detect talent.

A Rich Platform for Electronic Music Culture

To find out more about this music community and why Beathey specializes in electronic music, I talked to Beathey artist and contributor Nico Beldi. Beldi described electronic music in Argentina as massive, and that it has a “very rich platform,” although he also acknowledged that “maybe there is a connection that lacks culture, that lacks information.” He feels that Beathey enters into the industry well “because it is not just a record label, it is a community where artists can get to know each other and collaborate.” He has investigated the scene for a long time and says that with Beathey you will see a different community.

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The Startup Culture in Argentina

Of course, in its current state, Beathey is still just a startup. I spoke to Beathey investor Antonio Macadam about startups in Argentina, and he expressed a lot of optimism, but did say the system is still being constructed and needs more time. “There are events in the world that are happening in Latin America for the first time,” Macadam said, adding, “but there is a long way to go.” He said that lots of businesses here are advancing quickly, and he has seen a lot of projects like Beathey that have created a big impact. To help startups in Argentina, Sanguinetti said the number of people and the level of investment needs to be broadened. He also added that contributing what you can helps a lot, saying, “there is always the power to contribute something.” Warlies had similar thoughts, commenting, “There are more advanced systems with investment and more possibilities for startups here.”

Luckily for startups and entrepreneurs in Argentina, the Argentine Senate passed the ‘Entrepreneur’s Law’ last year, designed to open up the country’s economy and place the country back on the global market by providing new approval and financial procedures. This included measures aimed to increase investment activity, providing reasonable tax breaks for those hoping to invest in startups. It also makes crowdfunding platforms easier to register, which should help, as Sanguinetti highlighted the importance of crowdfunding to startups in the area and around the world.

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I also had the chance to ask the General Coordinator, who for publicity reasons cannot be named, of IncuBAte, the official incubation program of Buenos Aires City Government to which Beathey is a member of, a few questions about new and innovative businesses in Argentina. IncuBAte today has ten distinct categories such as Social, Design, and Technology and can offer new businesses benefits such as financial assistance, mentors and advisors, networking, and in some cases a working space. I asked what the most common problem is for these new businesses, to which they said, “the most common from my point of view have to do with prioritizing and focusing on which questions to start answering, and the link to market.”

IncuBAte is a program that lasts eleven months, but the idea, according to the Coordinator, is to stay connected, saying, “we consider this to be very valuable for networking.” For now, IncuBAte is still growing, but they said, “in the future we will see IncuBAte as a great community where lots of businesses are included.”

IncuBAte has seen many examples of businesses, such as Beathey, that have grown a lot under the program. Fivi, another IncuBAte startup, provides “virtual lines” for businesses that can alert clients when the product is ready. Initially believing restaurants were their target, during the incubation process they realized it was banks and medical clinics. IncuBAte validated the proposal and helped Fivi define these clients. Today they have evolved into a much larger company and work with two medical clinics.

The Coordinator says IncuBAte works as a multiplicator. “We believe in great team founders with concrete and scalable projects that resolve actual problems aligned to the sustainable development goals, and we help them thrive.” However, they acknowledged some difficulties, saying, “As a public incubator, we are in the first stage, where risk is the highest.”

The community and family culture is the major difference between Argentina’s IncuBAte and the United States’ Small Business Association (SBA). While on the surface, SBA provides the same services; capital, information, and assistance, it lacks the true ability to connect people with similar ideas together. While admittedly there are plenty of other incubation programs in the United States, none are funded by the US government. That being said, SBA was founded in 1953 and is well established, and IncuBAte is still relatively new, so it will be interesting to follow its growth.

While the cultures of Argentina and the United States may be different, I have seen that both countries have people with brilliant ideas trying to take the next step forward amidst similar challenges. While the current US government appears to be more protectionist at the moment, I hope to see more collaboration with other countries such as Argentina in the future.

 

If you are interested in learning more about Beathey, you can visit their website at beathey.com/en or find them on Facebook and Instagram at @RevolucionBeathey.

 

Sources:

https://medium.com/@RIAA/the-state-of-music-mid-way-through-2017-7e90cad298f9

https://www.forbes.com/sites/hughmcintyre/2017/09/21/streaming-continues-to-power-the-music-industrys-growth-at-2017s-halfway-point/#1975ec1a404e

https://www.statista.com/outlook/209/114/music-streaming/argentina#

https://techcrunch.com/2017/06/21/argentinas-government-is-wooing-entrepreneurs-with-a-new-law/

 

 

How Important is the Chinese Communist Party Congress?

 

Chinese President Xi Jinping bows before delivering his speech during the 19th National Congress of the Communist Party of China.

 

The National Congress of the Communist Party of China, a meeting widely covered yet very secretive, began in Beijing this week. It is the 19th Communist Party Congress, with the first being held in 1921. They have been held every five years since the 11th Congress in 1977. The event is not merely an election, nor is it simply an outline of policy, but rather a chance for chosen delegates close to the party to discuss political ideologies.

While changes of leadership within the party have seldom occurred during the assemblies, it has happened, such as Deng Xiaoping taking over at the 12th Congress in 1982 and subsequently transforming China into a global socialist power. While the 1982 Congress was certainly one of the more interesting and progressive meetings in the party’s history, current President Xi Liaping took control after 2012’s Congress, and is expected to firmly consolidate his power and remain in control. In fact, some are predicting that President Xi will usher in the next great era of Chinese power, as observers describe the 65-year-old as the most powerful Chinese official since Deng Xiaoping, or maybe even since Mao Zedong.

On Wednesday, President Xi opened the Congress with a speech in front of the 2,287 chosen delegates, which was promptly entitled, “Secure a decisive victory in building a moderately prosperous society in all respects and strive for the great success of socialism with Chinese characteristics for a new era.” The current President delivered his address in a manner that lived up to its title, taking no shorter than three hours and twenty-three minutes.

In this speech, President Xi strongly outlined the success of his five-year regime, stating China had “become a great power in the world” and played “an important role in the history of humankind.” He then used this to turn towards the future, getting the delegates excited for the next five years under Xi, stating, “It is time for us to take center stage in the world and to make a greater contribution to humankind”. Amidst uncertainty of Western democracies, President Xi affirmed his ideological confidence in the communist party and said they look strong and unified in comparison. Additionally, he said China would not close its doors to the world, and promised lower barriers for foreign investors, hoping to further grow the economy.

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Over 2,200 delegates were in attendance during the opening day of the 19th Congress.

If you had only heard Xi Linping’s speech, you would not be mistaken in thinking the entirety of the country was unified and resolute in its growth. Chen Daoyin, a political scientist from Shanghai, believes this very Congress will usher in the third great political regime since Mao Zedong brought communism to China. According to Daoyin, Mao, the revolutionary figure, represents the first epoch and Deng Xiaoping, the reformer, further strengthened China in helping it become wealthy. Now, according to Daoyin and other Chinese analysts, Xi Liaping is bringing in the third. Xi has been tightening his control over the party for the last five years, and now has the most power any Chinese leader has had in decades, perhaps even since Mao Zedong. While this is shown in positive light at the Congress, it could also be interpreted as negative.

President Xi spoke of measures to increase party discipline, and brought up a corruption crackdown that has punished more than a million Chinese officials. Additionally, he warned against separatism, affirming that Taiwan is a part of China and referencing recent political movements in Xinjiang, Tibet, and Hong Kong.

So how important is the 19th Congress? I believe it is massively significant, especially given the time period. Chinese officials make it seem like the gathering is a mere celebration and outline of Chinese strength and unity; however, I believe it is a move to tighten grip amongst fear of party separation. In recent months, independence movements have become very relevant worldwide. In September, Iraqi Kurds voted overwhelmingly for independence from Iraq in a controversial referendum. Days later, on October 1st, Catalonia voted overwhelmingly for independence from Spain in a controversial referendum. Both were met with violence and push-back from their respective countries. President Xi is well aware of these movements across the world, and used the Congress to deliver a warning to Taiwan, and other regions like Hong Kong, stating that Beijing has the will and power to stop any attempts at independence.

With the meetings only just the beginning, the Chinese Communist Party Congress will run until next Tuesday. Given the global influence China has, the rest of the world will be anxiously waiting to see what happens, not just in the next week, but in the next decade, as one of the world’s most powerful leaders attempts to bring China to its greatest height.

Sources:

https://www.cnbc.com/2017/10/16/chinese-communist-party-congress-what-you-need-to-know.html

https://www.theguardian.com/world/2017/oct/18/xi-jinping-speech-new-era-chinese-power-party-congress

http://www.bbc.com/news/world-asia-china-41647872

http://www.channelnewsasia.com/news/asiapacific/china-ready-to–defeat–taiwan-independence–xi-9320852

http://www.cnn.com/2017/09/27/middleeast/kurdish-referendum-results/index.html

http://www.cnn.com/2017/10/03/europe/catalonia-general-strike-protests-barcelona/index.html