A day of celebration! You have embarked on your new career with much excitement and a bit of trepidation. You’ve taken an immense step, but you know that this is God’s plan for your life.
Then you move to a new city and live through all the changes: a new house, new friends, new church, new everything. You have already met with your new bosses, culminating in a final agreement on your new salary. Everything is set.
During the next year you learn a lot. Your bosses and colleagues give you feedback assuring you that you’re doing a great job even in tough circumstances. You are excited and thankful. But then one day you notice something wrong: It’s your paycheck. For some reason it’s 20 percent less.
Thinking there has been some mistake, you ask your bosses. They remind you of the great job you are doing and how successful you are. Unfortunately the salary cut will have to stay in place; it’s beyond their control. Disappointed but not deterred, you struggle on. The next year the same situation happens again. Another 20 percent cut in your salary, another discussion with your bosses, and another claim that the problem is beyond their control.
Things stabilize for a few years. Then just last year, another 20 percent decrease. This last one hurts; you can’t afford even the basics anymore: food, clothing, transportation, shelter. The only choice is to go into debt or find another job. But God has led you to this specific career and this specific job. What do you do now?
This is the very situation that many of our missionaries find themselves in today. They are facing decisions they have never thought would cross their paths, including the prospect of going into severe debt to stay on the field or even the grim prospect of leaving the field completely.
As the repercussions of the subprime mortgage crisis continue to reverberate through the U.S. economy and strain its financial markets and banking system, a troubling and persistent problem has reached crisis-level for our missionaries faithfully serving abroad: the severe deterioration in the value of the U.S. dollar.
The fluctuating exchange rates are not a new problem, but the intensity is. Since 2002, the value of the U.S. dollar has fallen or depreciated by 24 percent against a trade-weighted basket of world currencies. Since 2003, the dollar has fallen 18 percent against the Japanese yen, 20 percent against the Singaporean dollar, 53 percent against the Brazilian real (pronounced ray-ALL), and 29 percent against the euro!
The collapse in the value of the dollar has become so severe and startling that The Economist, a well-respected financial publication, has started labeling the dollar a “subprime currency.” Last November Tom Enders, chief executive officer of European aircraft maker Airbus, declared that “the dollar’s rapid decline is life-threatening for Airbus” and could be solved only by significant cuts. Even the world-renowned Taj Mahal has stopped accepting U.S. dollars from tourists. How in the world did we get to this point?
As with any other good or service, the supply and demand for dollars will dictate its value. Because of historically low interest rates and large trade deficits, the dollar has been in less demand over the last few years. Recent weakness in the value of the dollar can also be attributed to the threat of recession that has gripped our economy. However, one must remember that the U.S. dollar is the preeminent world currency in terms of currency reserves that other nations hold (over 65 percent of the world’s currency reserves is in U.S. dollars ) and in terms of the preferred currency of international trade. Any declaration that central banks around the world and global investors are dumping dollars is much too premature and quite alarmist.
In addition, the United States is the largest consumption nation in the world, habitually buying imports at a much faster pace than we sell exports. This causes large trade deficits (a record deficit of $763 billion in 2006), in what is commonly referred to as the balance of trade. A weak dollar leads to an increase in U.S. exports, since they are then cheaper for the world to buy.
Conversely, it leads to a decrease in foreign imports, as they are more expensive for Americans to buy. So this increase in exports and decrease in imports helps the trade deficit. But this leads to a different problem. Because we consume so many goods and services and save so little, we cannot pay for it all ourselves and must finance our consumption by borrowing from abroad.
Falling interest rates
This is where interest rates start to matter. As our economy has weakened, interest rates have fallen significantly. The Federal Reserve has cut the federal funds rate (the rate at which banks borrow from each other) from 5.25 percent to 3.00 percent in just the last five months. Lower interest rates in the U.S., relative to the rest of the world, make investment in U.S. dollar assets (whether bonds, stocks, or real estate) look less attractive. A reduction in the demand for our assets will reduce the value of the dollar. However, as interest rates around the world fall due to slowing global growth (as they should over the next few months), this removes some pressure from the dollar’s decline.
The International Monetary Fund recently released its global growth forecast and declared that it could be as low as 4.1 percent, down from 4.9 percent in 2007. This is mainly due to a reduced growth rate in the United States. Still, the forces of globalization are quite diverse and much more complex than what is popular to convey in the popular press and in political campaigns. Trade balances, interest rates, and speculative demand can all factor into the level of exchange rates. Regardless of cause, one thing is certain: our missionaries have a severe loss in purchasing power.
The illustrations and testimonies that accompany this article show the practical side of this problem. Most missionaries have raised their support in the U.S. from local churches and individual believers. This is paid to them in U.S. dollars. However, since missionaries live and work in their local ministry field, their expenses must be paid in the local currency, be that euros, reals, yuan, or yen.
Our missionaries have already given up luxuries like an occasional trip to McDonald’s ($36 to feed a family of four in Europe). Gas is not a luxury, and is costing more each month ($6 a gallon in Korea). Basic food staples are not a luxury, and prices are only going up ($8 for a can of Crisco in Thailand). But the absolute amount of local currency to spend on those basic necessities has been drastically reduced. So just like our own household expenses, when the missionary pocketbook gets squeezed, something gets cut. And not only do our missionaries have to worry about what personal expenses to cut, they have to debate and prioritize about what ministry expenses to cut. Gas for the car or gospel tracts? Food on the table or Bibles to hand out? These are tough choices that most missionaries never envisioned having to make.
What can be done about this problem? One thing is certain: changing a nation’s monetary and fiscal policy is not within individual believers’ scope of control! But God will enable us to take more specific actions to aid our missionaries during this time of need.
Become better informed. Many churches are aware of their own budgets but unaware of their missionaries’ needs. The pastor, deacons, and missionary committee should know and understand the financial situation of each missionary they support—even asking pesky questions if a missionary seems reticent to volunteer this information.
Increase missions support. This is the most direct solution. Increasing our financial support of missionaries would help offset this situation, including increasing support to those whose support level is currently at 100 percent. It may be at 100 percent in dollar terms, not in local-currency terms. As churches determine their annual missions budgets, regular increases must be included to offset the effects of exchange rates. This will undoubtedly provoke a church-wide discussion on financial priorities. Bottom line? How many Starbucks lattes do we give up to solve this problem?
Work with missionaries to reduce their costs. Churches that commission or send missionaries have a special responsibility to advise their missionaries. The sending church should thoroughly study all costs and fees that are required of their missionaries to ensure that all are appropriate and necessary in these times. Surprisingly, missionaries sometimes make weighty financial decisions on the field without consulting their sending church.
Encourage mission agencies to manage currency risk. Mission agencies—servants of the local church—need to work aggressively to manage currency risk on behalf of our supported missionaries. Done correctly, this risk management will entail some costs and will require responsible oversight. Mission agencies, or representatives of their choosing, could easily calculate the amount of foreign currency exposure they have and effectively hedge that exposure using options, futures, or forward contracts. Such a hedge would pay the mission agency when the value of the dollar falls, and that income stream could be distributed to the missionaries who have been affected. Let me be clear that this type of hedging is completely different from the popular term “hedge fund” that is in the press today. If done properly, hedging is no different than the life and health insurance we expect our missionaries to have. It is an effective and well-respected risk management tool.
Educate supporting churches. Educating supporting churches is a more indirect solution and will not immediately provide relief to missionaries. However, if supporting churches and individuals understand how currency exchange functions and how our missionaries are affected—including their support needs in terms of local currency—supporters would better understand missionaries’ needs and financial situations. To help with this education, this article is posted at BaptistBulletin.org, along with a PowerPoint presentation including the illustrations in this article.
Send emergency funds to missionaries. Although the value of the dollar is forecasted to increase slightly in the coming months as world growth slows and demand for the dollar increases, none of the forecasts show it going back to anywhere near where it was only a few years ago. We need to do all we can now to help alleviate this financial strain on our missionaries. The last thing we want is for our missionaries to be forced from the field due to a financial situation we choose not to understand or address. Vast stretches of this world remain unreached with the gospel of Jesus Christ.
Randy Woodbury, a portfolio manager with Principal Global Investors in Des Moines, Iowa, is a deacon at Campus Baptist Church, Ames.
- Download the entire 4-page article, “The Incredible Shrinking Dollar,” by clicking on this link: shrinking-dollar.pdf. This article may be duplicated for use in your own church ministry.
- Download a PowerPoint presentation that shows the impact of the falling dollar on world missions: report-the-falling-dollar.ppt
- Read The Red Sea Miracle by missionary Todd Daily
- Download an Excel Chart showing the value of the Euro, 2003-2008: euro.xls
- Download an Excel Chart showing the value of the Yen, 2003-2008: yen.xls
- Download an Excel Chart showing the value of the Singapore Dollar, 2003-2008: singapore-dollar.xls
- Download an Excel Chart showing the value of the Brazilian Real, 2003-2008: real.xls