Nov 06 2007
World’s top supermodel rejects the US dollar!
Published by Jason Welker at 9:24 pm under Currency,Exchange Rates,Foreign exchange markets
BBC NEWS | Business | Supermodel ‘rejects dollar pay’
Currency speculators should take note… the world’s highest paid supermodel has sent a clear signal to those buying and selling currencies in the foreign exchange markets: The US dollar is NOT a good buy!
How does a woman who made $30 million in the first six months of this year send such a signal? By refusing to accept modeling contracts offered in US dollars, insisting she be paid in Euros.
The question is, why does she care what currency she’s paid in; can’t she just convert it to whatever currency she wants once she’s paid? According to Tim Harford, the “Undercover Economist”:
It seems she believes that the dollar is likely to fall in the short term, between the time a contract is agreed and the money is paid. (In the long term, who cares? She can convert her cash to any currency she likes.)
The weak dollar is clearly of concern to Americans consumers and foreign producers alike, but it’s more than likely that Gisele, while she may be the queen of the catwalk, probably knows more about striking the perfect pose than she does about behavior of foreign exchange markets.
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About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course.
Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this authorRelated posts:
It looks like US domination over the world in economy-wise is on the downhill. The decline of the US dollar is a way to represent this. The US economy's growth is being outstripped by countries in Europe and Asia, particularly China. That would explain why a model such as Gisele Bunchden, (by the way, she was so hot in Taxi) would turn down US dollars and insisting payment be in Euros because the value of her Euros would be greater than the dollars. Take for example the RMB; would you rather exchange from RMB to dollars or dollars to RMB? RMB to dollars because it would take only 7.5 RMB to get 1 dollar, but for 1 dollar, one would only get 7.5 RMB, not the 8+ it was way long time ago.
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The Exchange Rate between the USD and Euro was 1:0.78 this time last year and now it is 1:0.68. So if Gisele signed her contract last year and agreed on getting paid in Euros, her employers would need to pay her (0.78 x 30 million dollars) which is 23400000. If she got her pay today, 23400000 EUROS would equal more than 34 million dollars. So as we can see from merely getting paid in euros, gisele could make an extra 4 million dollars, ABOUT 13% OF HER SALARY.
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Apparently, I can neither strike the perfect pose nor understand the behavior of foreign exchange markets. Giselle seems to make sense if the dollar does fall in the short term, such as what Danny said. So what is the problem? The Euro is clearly on the rise, so if she is paid in Euros, her salary in terms of US dollars actually rises. According to the other blog post about the falling US dollar, the falling of the US dollar makes Europeans happier since they have a greater buying power, but makes Americans woeful since their buying power is decreased. What's wrong with her argument?
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The thing that Giselle is doing is basically the same thing that the money exchangers are doing, changing their money from currency to currency in order to take advantage of exchange rates and earn more money. Giselle is just doing it on a much bigger scale and probably more successfully. So not only by earning more by demanding to be paid in Euros, but by having Euros American goods are relatively cheaper so her purchasing power increases from what it would have been if she wanted to be paid in dollars.
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Yeah I agree with Yun Qi and Danny. I don't see a problem with her argument. If she was paid in US dollars, once converted into Euros, she would yield a much less income than if she was paid in Euros. By obtaining a higher income in the short run, she can INCREASE her total income in the long run when she converts it to USD because due to the fact that USD is declining, the Euro is worth more, and if she has more money in terms of Euro, she'll obtain more money when she converts to USD.
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Everyone makes a good point in that she does make more money by being paid in Euros, but she got paid $30million in the first six months, does she really need more?! She's already set for the next few years…
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Well even if she is paid 30 million dollars in the first six months, she probably still values the substantial increase of 4 million dollars she would have had because she still has limited income. To be honest, I'm not clear what the argument is either. I mean, from the posts above, its clear that she would have earned much more money if she was paid in euros a year ago as opposed to now. Maybe its the unpredictable turn in exchange rates or the tax put on exchanging money that will cause her income in euros to be pretty much the same as if she was paid in US dollars.
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I think that since that supermodel, is making 30 million dollars already in the first six months of this year. I agree with most of the posts above on how if she was paid in euros instead of USD because of the decline of the USD. With her demand on only accepting euros for her payment she is quite informed on the recent drops on the USD. But Kevin Chiu has also made a good point on how the exchange rates or tax is unpredictable.
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In Korea, too, 1 dollar was worth more like 1000 won before. However recently, it dropped below 1000. Let's just say before 1 dollar was around 1100 won and now its 990. Imagine if you had 5000 dollars before, thats 5500000 won. However if you have 5000 dollars now, thats only like 4590000. Thus if you kept Korean money, you can get more than 5000 dollars now. That is already a huge difference, and $30 million dollars can make a HUGE difference if the value of the USD keeps declining. I guess she's being a little too picky, but I personally too think there's nothing wrong with what she is doing.
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It's surprising that even super models understand economics. It makes sense that she would want to be paid in euros as the us dollar is predicted to fall and decrease in value, which would affect her total income. This fall in the value of the US dollar would also be beneficial to her if she was paid in euros, since the exchange rate for one euro to us dollars would be higher. Her income in terms of us dollars would then increase by some extent, increasing her income.
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Gisele's smart, but this also reminds me of a few years back when a lot of British teachers left SAS because they didn't want to be paid in USD. I guess they felt that being paid in USD was a disadvantage for them, and they sought jobs elsewhere. I guess the falling dollar is no longer something only economists discuss. I'm leaving for Singapore in 2 days and I'm not bringing any USD to exchange like I would have a couple years back, I just wouldn't be getting an advantageous exchange in currency back. I wonder how this would translate to rising college tuitions next year though.
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I think this is very interesting for a top model to do. I didn't know that they really cared about their currency. However after reading the comments, I can see if her predictions come true, profit can be raised by a lot. On the other hand, some people mentioned that the change in currency can really be unpredictable, and therefore wondering about which currency to be paid may not be such a big deal.
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Haha, I actually read about this on a celebrity gossip site recently. As mentioned in previous comments, she is definitely well off even if she is paid in US dollars and that US dollars' worth will fall. I guess she just wants to be paid her moneys worth. But besides that, this article indicates that perhaps everyone (even if you are a billionaire), how much the money is worth and how much it will be worth in the long run is still considered.
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I guess this model wants to make even more money, by rejecting payments in US dollors. But then, everyone wants to make more money even if they are already making so much. If USD is converted to euros, it will definately by less in value. The model would earn more money if she was not paid in USD.
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If I were her, I will do exactly same as what she did. Isn't every one wants to earn more money. If the value of US dollar decrease and the value of Euro increase, I think I will be wanted to paid with Euro than Dollar. She won't be able to use all her money in a day, therefore, in the future, although the value of Euro is lower, it will be better in the future.
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It makes a lot of sense for her to refuse to be paid in US dollars as the value of the US dollar is decreasing. On the other hand, the value of the Euro dollar is increasing. As her goal is to make more money, it would make sense for her to refuse to be paid in US dollars.
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Knowing models, she probably doesn't want american dollars because she's going to blow it all in the short run anyway. But also knowing models, she's not so smart in the sense that she should be saving up for her "over the hill" years.
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Gisele is already earning a lot of money, but I guess she wants more, because her argument here perfectly makes sense. She realizes that the USD is likely to fall in the short term, and also is aware of the fact that being paid in Euros would yield more profit. With the value of Euros rising and the value of the USD declining, Gisele can earn more money by receiving Euros and converting it to the USD. I still don't understand why a top model like Gisele would care about which currency she is paid in, but I do agree with her argument.
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