Can the Black Market Save the USD?

Odd question indeed but maybe more to it than would be intuitive.

The US Dollar (USD) has taken a huge hit over the last year and talk of it losing it's status as the worlds reserve currency is on the rise. Whether the Russians, the Chinese, the Opec members, or even the Venezuelans all the latest rumblings are for some basket of currencies to supplant the greenback in the world reserve status. I have pointed out ad nauseum that there is no entity or group of entities that possesses the necessary gravitas combined with the necessary stability to qualify at this time. For the record I think the potential for such a qualification is well off in time but remains a possibility until the US economy regains its footing in a meaningful and undeniable way.

In the countries most loudly calling for a "new paradigm" in the worlds reserve currency the Black Market represents a considerable percentage of the GDP and if the currency of world exchange was suddenly shifted there would be consequences that would be at least as considerable.

For Venezuelans, where the black market plays a crucial role in the financial system, the dollar has retained its status. Residents seeking protection against inflation or a devaluation of the bolivar turn to currency traders. Large companies that need dollars for operations abroad also visit the unregulated market.

In Nigeria, sub-Sahara Africa's second-largest economy, currency traders still deal predominantly in American currency. The black-market traders even have their own trade group, the Association of Bureaux de Change Operators of Nigeria. "The dollar still has dominance in Nigeria," said Alhaji Farouk Suleman, the president of the group. "The exchange rate might not be good, but you know what you're dealing with and that you can use the dollar anywhere you go. I don't see any real shift towards the pound or euro."

In trips to places as disparate as St. Kitts, Equatorial Guinea, Kazan, and Mexico, I have found one is given preferential treatment by retailers and service people if one uses the Dollar over the local currency or any other currency for that matter. If one wishes to buy large quantities of Drugs or Weapons the exchange is very likely to be done in dollars. When Saddams palaces were raided he was found to have hundreds of millions in USD. When we captured Noriega he had caches of USD, as did Pablo Escobar. The trade in endangered animals so wonderfully detailed in "The Lizard King" by Bryan Christy takes place in USD whether it's in Indonesia, Malaysia, or Papua New Guinea.

Now, as i have stated in previous blogs and on my StockTwits TV program, I believe there are many legitimate and above board reasons for the USD to maintain its status as the worlds reserve currency. I do understand however, that the Black Market worldwide, and especially in the countries aforementioned that most vociferously call for USD to lose its status, represents a powerful motivating force to encourage the status in perpetuity. I further understand that this force plays a key role even if tangentially in maintaining the USD as the paramount currency of world trade.
One of the reasons I titled this post as I did is that while I believe world politics and economic forces in play are volatile and likely to change in manners predictable and less so, the existence of a black market, which trades in USD is so intractable, that it may indeed be the biggest anchor against change in the paradigm of international exchange.

For this Blog I referenced and quoted several items from this fine article in the Wall St. Journal India Edition written by NGUYEN ANH THU in Vietnam, DARCY CROWE in Venezuela, and WILL CONNORS in Nigeria. Guidelines for membership in the Association of Bureaux de Change Operators of Nigeria

Additional references and articles on related topics:
From the "Big Think" Blog How Black Market Jobs Are Keeping the Global Economy Afloat
From the Korea Times: Underground Economy Accounts for 28 Percent of GDP
From The Central Europe Review The Blessings of the Informal Economy


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