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The Exchange Rate and the Art Market
by Daniel Grant Six to 12 months ago, the Fine Art Fund Group—a London-based hedge fund that buys and sells artworks in eight different categories—had looked to acquire pieces in the United States and sell them in Europe because the dollar was weak relative to the British pound and the euro. The exchange rate allowed the fund to buy low and sell high. These days, things are just the reverse, said the fund’s director, Philip Hoffman.“We’re looking at Paris and London auctions to buy and mainly at New York to sell.”In addition, the fund used to price in euros the artworks it was buying and selling, "but we’re pricing everything in dollars now, because that is clearly the strongest currency.” During the past half year, the British pound and the euro have slid in relation to the dollar between 25% and 35%,asEurope has been slower to emerge from the worldwide recession than the United States. Further strains on the euro also may arise if Greece and several other nations on the Continent require a bailout to keep them from defaulting on their loans. How, or if, art collectors on both sides of the Atlantic respond to the changing value of their currencies is not fully clear, but many gallery owners and auctioneers are preparing for changes. “We’re anticipating that fewer Europeans will be buying at ArtBasel,” said David Nash, co-owner of New York City’s Mitchell-Innes & Nash gallery. Nash noted that Europeans dominated the buying at last June’s annual art fair in Basel.“Everything we sold at Art Basel went to Europeans, and we’ve done quite a lot of business with Europeans and the British since then. Certainly, as the euro becomes less strong, it puts Europeans at a disadvantage to Americans in terms of buying.” Similarly, Michael Findlay, a director of the Manhattan-based Acquavella Galleries, claimed that “it was a bubble when Europeans found our currency conducive to buying.” He expected that more American buyers would be active at Art Basel. “We’re also buyers in Europe,” he said, “and perhaps we’ll do a little better.” Orley Ashenfelter, an economics professor at Princeton University who has written on the art market, noted that a painting selling for $150,000 in the U.S. when the dollar-to-euro exchange rate is $1.50 per euro would have to bring €100,000 in Europe to keep everything equal. “If not, people will buy where it is cheaper, “he said. If, however, the euro declines in value vis-à-vis the dollar to, say, the current value of $1.32, the European price would have to be lowered to €88,000,or the price in dollars would have to rise to $169,500 if the €100,000 European price were to be maintained, in order to keep things in balance. A slippage on the part of the European currency results in a situation in which “people who earn in euros will feel that they are priced out of the market, while people who earn in dollars, the reverse,” Ashenfelter said. He believes that European collectors are likely to adjust quickly by setting their prices in dollars for art-works that have an international market, as Chinese collectors and those in the Middle East have long done. Other economists are not expecting a significant drop in collecting activity by Europeans. Tyler Cowen, an economist at George Mason University, noted that wealthy Europeans likely are “holding lots of dollars in the first place.”They acquired the dollars when the dollar was weak, and they can now put them toward acquisitions such as art. He also noted that art collecting is “oddly insensitive to exchange rate movements, across movements of even twenty or thirty percent.” That view was seconded by New York University economist Michael Moses, the principal author of the Mei-Moses Art Index, which tracks art investments in relation to Standard & Poor’s. Moses claimed that “people buy art because they like to collect or to beautify their homes, but not as short-term trading vehicles. The average holding period for art is more than twenty years, so relative changes in currency over short periods of time get washed out.” | ||||||