Wednesday, September 7, 2011

If Only the Whole World Were Like the Eurozone

Aflac is presenting at KBW's insurance conference today.  I was watching the presentation, and the company shows this slide:

Aflac does a significant amount of business in Japan, which is why the company has such large swings in dollar EPS depending upon the level of JPY.  I can't help but look at this slide and think about how much simpler analysis of Aflac would be if I didn't have to worry about currency swings on top of worrying about the business.

It's a pretty intuitive thought, but one that is particularly salient given what's going on in the Eurozone today.  With so many pundits pontificating about how the unified currency system is untenable, so few acknowledge the superior benefits that the Eurozone has enjoyed from a unified currency.  Just like the metric system does for weights and measures, a standardized unit of account greases the rails of commerce.  A unified currency lowers the cost of doing business simply because it simplifies analysis and reduces uncertainty.  

Maybe that's why the leaders of Europe are fighting so hard to save the Eurozone.  A collapse of the Euro would be devastating to real GDP in the region--not just because of the Lehman like shock effects but because of the economic destruction caused by going from a simple solution (single currency) to a complex one (many currencies).

No comments:

Post a Comment

For compliance reasons, I don't post comments to the site, but I do like hearing from readers and am happy to answer any questions. Feel free to use the comment box to get in touch. Please leave an email address in your comment so that I can write back, or email me directly at