Cash and Revolutions
Cash and Revolutions
There is a saying on the poster in our office “Come the revolution things will be different, no better just different.” No doubt one of the more optimistic sayings from Murphy and his book of laws.
In the developed world – revolutions and severe civil unrest are rare. In much of the rest of the world such as Africa, Central Asia, Latin America – severe civil unrest is quite commonplace. The people in these locations and thus the businesses, as businesses are made up of the people, no longer trust the financial institutions or the government. More specifically they do not trust what the government will do with or to the financial institutions if, or when, severe civil unrest or revolution occurs. The more corrupt the current government – mixed with the inevitable dash of incompetence – the more distrust there is and thus the more likely the banks are not used for anything other than target practice. The economy becomes a cash and barter economy.
It is hard for us in the developed world to understand what this means until you visit it and work within it. The most recent adventures have been to Iraq, Zimbabwe and Argentina.
Iraq is falling apart. The government has squandered its resources and its legitimacy. As the country falls apart people have withdrawn their money and are making money in the cash and barter economy. They know there is a central government – but for what? They can’t keep the peace; they cannot keep the streets safe, so why should anyone think that the banks are going to be fine? The people in Iraq, at best, ignore government.
Zimbabwe is so bad that after they inflated the snot out of their currency – the country finally dollarized. That is right, the dollar – the US Dollar is the currency of the street. If you wish to buy a car or pay a bill or buy a bus ticket – it will be in dollars – period. Also the banks, while in operation are used as only a short-term place to hold the currency when bills are being paid or wires are being sent. The banks regularly receive and hand out large amounts of dollars. It was not unusual to see a small roll away bag going down the street. These guys are not going to the airport but transporting dollars to buy cars, homes, construction material, etc…
Argentina is a failing state, not yet a failed state – but that is coming. The banks remain open, but since the country nationalized all pension schemes and all the pension money too – locals either keep their deposit savings outside of the country or 80% or more in cash. Some cash is held in local Argentine Pesos but most cash is either in US Dollars or Euros.
Dealing with cash from people in countries that are having problems is not unusual. While we in the western world may think that anyone wandering around with $15,000 USD is odd and thus must be a drug dealer or some other form of criminal – sometimes it is just a person escaping civil strife or a failed state.