Inconvertible+Currencies

A Look At Inconvertible﻿ Currencies The Zim Dollar hits the 100 Billion Mark---Never did the US Dollar look so good--How low can you go...Zimbabweans trash the Zim Dollar after noting its true valuenothing

The term "Inconvertible Currency" refers to currencies that have lost both the privilege and power to be converted into gold, silver or any other unit of account held by a government's central bank. Likewise, it can be interpreted as a currency which cannot be exchanged at any financial institutions, including banks. While this phenomena has been confined to a handful of nations, conditions today are ripe for currencies to find themselves in deep turmoil.
 * Origins and Details-What is it exactly?**


 * Good Stuff**
 * -[[image:zimbabwe-flag.png width="68" height="60"]] Zimbabwe has been infamous for its currency-the Zanu PF Dollar. The Zimbabwe Dollar,which was once a tycoon in the continent of Africa, now finds itself on the brink. World Bank has been left so exhausted tracking the conversion rate that it has abandoned any further efforts to measure its value-if it has any that is.**

Why do countries find themselves in such turmoil. How does a perfectly functioning economy suddenly find itself so listless, helpless, and doomed. Incovertible Currencies, in most cases, are closely associated with Hyper-inflation. Hyperinflation is monetary inflation-except that it is occurring at a very high, uncontrollable rate. This is nothing new. Poland saw this in the early 1900's. The Weimar Republic of Germany say this in the 1920's. And now Zimbabwe is facing the dire consequences of mingling with its fragile economy.
 * Determinants**
 * Determinants**

Hyperinflation is when inflation reaches such a high rate that several things happen. First, it is impossible for a bank to offer interest rates that can keep up with the rate of inflation. Second, money loses substantial value between the time it is acquired (i.e. paid to employees) and the time that it can be used (i.e. spent at the market).

There are several things that cause it. First, it sometimes happens when a country first lets its currency float -- i.e. be traded on the open currency market. In such cases, the government has set the official exchange rate at a level that values the currency much higher than the real value of the currency. In such cases, the large almost instantaneous devaluation of the currency sets off an inflationary spiral. Other times it is set off by a credit crunch in which the only way to meet the obligations of the government is to devalue the currency. In all circumstances, it reflect extreme doubt in the current value of the currency and the ability of the government to stabilize the value of the currency.

It matters because it instantly reduces the buying power of the middle and working classes and discourages saving of money (especially saving the money in country where it is availabe for investment) When prices are being raised daily, a spending frenzy ensues in which every unit of currency earned is consumed which eliminates any savings to rebuild the foundation of the economy. Those who can quickly exchange their currency and move it out of the country.

All in all, hyperinflation creates an economic nightmare.

***Good Stuff**
 * [[image:germany_flag.jpg]]The Weimar Republic had its own share of problems during Post WW1. Hyperf-inflation had crept to such levels that the German public vented its anger by decorating its walls and public buildings with the German notes! **

* **Other Determinants** Hyper-inflation aside, there have been instances where the government has taken a tough stance against the international community. Take Iran, for example. North Korea aside, you won't find a country taken holds a greater grudge against USA than Iran. In the 1970's, when the Shah of Iran was deposed, Iran suddenly changed its stance and polarized all its ties with USA. The Economic sector was not spared. Their new leader, Ayatollah Ali Khomeni went as far as closing the foreign reserves as imposing a ban on all foreign currencies. He deemed the Iranian currency, "insurmountable" and disallowed its exchange for any currencies.

On a lighter note, barring extreme methods, governments do sometimes impose embargoes and install inconvertible/blocked currencies to protect the interests of the general population. At times, the general population may be driven by speculations to poor decision making, thereby leaving the government with no choice but to impose temporary embargoes on any foreign activities-thus alienating the domestic currency on a temporary basis. All for a good cause, though.

**Good Stuff** ** India had its own share of problems in the 9180's. When BJP (Bhartiya Janata Party) took office, they took their conservative stance a little too far and offended US President Nixon. He retaliated by calling the Indian President a "witch". Things got messy from that point on when the Indians isolated themselves by severing ties with the Western community and deeming the Indian Rupee inconvertible-for a short while fortunately. **


 * Effects on the Economy in General**

It is no surprise that an inconvertible currency leaves crippling effects on an economy. If a currency is left unattended for a long time, however, the damage will only worsen in magnitude. If an exchange rate is well below the international standards (i.e. during periods of inflation/ hyper-inflation), the international community will not be too keen to invest in a country's infrastructure or economy, for that matter.

While a country's exports will appear to be appealing, the imports will be sold at a rather high price. If the domestic firms are unable to purchase the international goods, they will struggle to be able to sustain the current level of production. The population's demands will not be met over time, while the domestic infrastructure will rot over time. At one point, the quality of exports will be so poor that the international community will just abandon the sales-thus producing a vicious cycle of destruction. Need an example-Look no further than Zimbabwe or Sudan. Zimbabwe, which was once the bread basket of the African continent, now finds itself on the brink-feeding off aid provided by UN and NGO's. Its tourism industry now serves as its only feeding hand-only a matter of time before that shuts down as well.

If the examples provided above were not enough, take a look at the following powerpoint and videos, and provide your take on this topic in general (in the comments section that is).
 * Its Presence in the Real World**

media type="youtube" key="DB_uHq1_8FA" height="312" width="511"media type="youtube" key="VNXc0HEDDrE" height="351" width="416" align="right"

media type="custom" key="8336482" width="291" height="216"

__**//To sum my presentation, here's a survey for you://**__ media type="custom" key="8343230" __**//And some pics as well..//**__ media type="custom" key="8343442"

__//**CITATIONS AND SOURCES**//__ __//**Three Pictures on the top (from left to right):**//__ fofoa.blogspot.com survivalus.blogspot.com  housingpanic.blogspot.com __//**The Main Information was obtained from:**//__ www.econlib.org/library/Enc/**Hyperinflation**.html http://www.investopedia.com/terms/h/hyperinflation.asp


 *  ||  ||