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In World Markets, the Dollar Inspires Trust

SS4-10-14In dollars we trust. In spite of recent ups and downs in the world money markets, that’s still the view of the venerable US greenback in many places around the globe. The reason for the dollar’s continued popularity: it’s backed by a stable, secure government and works virtually anywhere in the world.

As a recent Flightfox report on the bustling black money markets in Argentina reveals, for much of the world, US currency is still the go-to currency in uncertain times – and users are willing to pay to get hold of it.

AS Flightfox reports, Buenos Aires is home to one of the world’s largest – and most open – black markets for currency in the world, and people flock from everywhere to change out Argentina’s severely devalued – and largely unstable—peso for American dollars at rates far above the government’s exchange rate.

Why? In 2002 Argentine fell into a severe debt crisis, and the resulting government defaults caused mistrust of the government and its financial institutions. That mistrust caused a run on the country’s banks, and the government imposed limits on how much account holders could withdraw at any one time. At the same time, it restricted the acquisition of foreign currencies, most notably the dollar.

And so, in a quest for a stable, trustworthy currency that’s immune to the country’s political ups and downs, Argentineans rich and poor flock to the black markets to acquire dollars and hold them as security against another financial crisis.

Where do the dollars come from? Tourists, of course. But other transactions such as investments bring dollars into the Argentinean economy to proved a stable, if largely illegal, financial foundation for many citizens.

It’s a scenario played out in various forms in numerous other countries around the world, but particularly in Latin America where government and financial instability create periodic monetary crises.

That’s why the Bitcoin, the stateless, paperless digital currency, enjoys such popularity in those same countries. Decentralized and anonymous, the Bitcoin also offers residents of those politically unstable countries an alternative to the ups and downs of their “official” monies.

But for sheer staying power, not much beats the dollar. Backed by a demonstrably stable government and functioning economy and tradable virtually everywhere in the world, US money represents a solid and secure base for transactions of all kinds. That’s one reason why, as Jason Hartman says, investing in US property creates a long-term foundation for building wealth. (Top image:Flickr/imagesofmoney)

Source:

McClure, Grace. “The How And Why of Argentina’s Currency Black Market.” Flightfox. Flightfox,com. 25 Oct 2013.

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The Solomon Success Team

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