Currency appreciation and depreciation are common occurrences in countries and markets that adopt a floating exchange rate. Here, factors on both the local and international level play a role in either hiking or diminishing the value of various currencies.
As discussed previously on our blog, these rates have a huge impact on our day-to-day life. Unsurprisingly, currency exchange fluctuations also play a crucial role in the travel and tourism industry – a fact, which explains the presence of an increasing number of tourists on Australian soil.
On our blog this week, we take a look at how currency appreciation and depreciation affect the global travel and tourism industry. Continue reading to find out more!
Currency depreciation can make travel more affordable
Adopting a local perspective, currency depreciation is almost never welcomed with open arms. Needless to say, a downward trend usually causes the cost of living to rise and impacts international trade and exchange, among a range of other factors.
One of the upsides of a downward progression, however, is the upswing in local tourism. A local currency that’s depreciating means that travel, accommodation, and a range of related expenses become more affordable for international tourists – a fact which compensates, in some way, for the ill-effects of a downward trend.
In Australia, for instance, a record 9 million tourists entered the country in 2017 – a result of the depreciating Australian dollar against its US counterpart.
This is noteworthy, particularly because of its effect on the local tourism industry. According to Austrade, this sector supports around 600,000 jobs and generates approximately $123 billion a year – roughly 3% of the country’s GDP.
Currency appreciation may adversely impact local tourism
On the other end of the scale, currency appreciation in a traveller’s home country can force the tourism industry to take a hit. While this kind of trend does spell domestic prosperity for nationals, travel and tourism can stagnate, posing its own set of issues.
This is especially the case for countries that depend heavily on this sector to boost local employment and the economy. Beyond local currency appreciation, other factors that also threaten travel and tourism include the depreciation of currencies in other parts of the world.
This, similarly, can cut off a flow of crucial tourists, who often contribute significantly to local economies.
Volatiles spikes in currency exchange rates can make the industry unstable
Beyond local currency appreciation and depreciation, if such spikes take place too rapidly in countries around the world, the global travel industry may take a heavy hit. In 2017, the total contribution of travel and tourism to the global economy was 8.27 trillion U.S. Dollars.
While depreciation can be favourable for tourism, a volatile market can prove too unstable for people who prefer to plan their holidays over a period of time.
Should this industry take a heavy hit owing to economic factors that lie beyond the control of even the most robust governments, therefore, it is likely that travel will prove too expensive for a significant number of people. This may affect certain countries and regions more disproportionately than others.
This can also affect labour markets around the world, given that the global travel and tourism industry is responsible for approximately 9.9% of total employment, as per estimates from 2017. Accordingly, 1 in 5 new jobs created last year was a result of activity in this sector.
Key takeaways
Currency appreciation and depreciation are pivotal forces in the global travel and tourism industry.
Given their ability to control the purchasing power of all travellers – a fact, which ultimately determines all other developments in this sector – understanding how this can affect the affordability of travel is important.
The next time you’re planning a holiday, take a look at currency exchange trends, both at home and abroad. This way, you get an understanding of just how much you’re likely to spend while you vacation. Pro tip? If the currency value at your travel destination is too high, look for areas in the region with similar attractions and a currency that’s showing signs of depreciation.
Curious about the other ways in which currency appreciation and depreciation can affect your travel plans?
At Ceylon Exchange, we’re in the business of monitoring currency appreciation. Head to our blog for more travel tips or our currency exchange page for how we can help you plan your next sojourn abroad!