Category Archives: Travel
Here’s a section that got cut from my New Republic story about the use of the US dollar in Zimbabwe
Wait, so a country can just adopt the United States’s currency without our permission?
“The U.S. government has never taken any overt position on dollarization, formal or informal.” This is Benjamin Cohen, a political economy processor at the University of California Santa Barbara, former Fed employee and the author of some articles I’ve been reading to try to understand how one country just gets up one morning and starts using another country’s money.
Ninety percent of the world’s $100 bills, Dr. Cohen says, are in circulation outside of the United States. Dozens of countries are considered to be “highly dollarized,” meaning more than 30 percent of their money supply is in dollars.
Unlike Zimbabwe, which has formally adopted the dollar, most countries use the U.S. dollar informally, in parallel with the local currency. A few years ago I was in Cambodia for work, and found that the local currency, the riel, was only used for small stuff like meals, transport and entertainment. Anything major—a TV, a plane ticket, an iPhone—prices were quoted and paid in U.S. dollars.
It’s not just Cambodia. These sorts of arrangements are commonplace throughout the Middle East, Latin America and Southeast Asia. People use the local currency, but keep U.S. dollars as a hedge against inflation, like Tea Partiers hoarding gold.
According to Cohen, the United States has no reason to prevent these arrangements. Not only does the U.S. dollar provide a quarry of monetary calm for citizens of inflating nations, the U.S. actually makes money every time our money leaves our borders. “Seniorage,” as the economists call it, is the profit the U.S. earns every time a foreigner ‘buys’ a dollar for a dollar (It costs 6 cents to print a $1 bill. If you print one, then use it to buy something that costs a dollar, you’ve just earned 94 cents profit. That’s seniorage.).
This sounds like it shouldn’t be a real thing, but the US earns $20 billion per year from all those $100 bills held internationally. Not a huge proportion of GDP, but hey, free money, right?
The other upsides are obvious. Every time another country uses our currency, it reinforces the U.S. dollar as world’s preferred international currency, just like every time someone drinks a Coke or eats a Big Mac it reinforces the status of those brands.
Foreign countries using our currency even gives us diplomatic power. Panama, one of the first countries to formally adopt the U.S. dollar, froze in its tracks when the U.S. cut off access to hard currency in the late 1980s to put pressure on Noriega.
The only real downside of foreign countries dollarizing, for the U.S. at least, is that it creates a headache for the Fed. The more countries dollarize, the more the Fed has to take them into account when making monetary policy. A million calculations go into the decision to raise or lower interest rates, and the last thing the Fed needs is to add the interests of Cambodian iPod salesmen into the mix.
One of the more significant downsides is if a dollarized country suddenly reintroduced their domestic currency, it might flood the market with millions of now-unneeded U.S. dollars, reducing the value of all of them. It doesn’t even have to be a whole country. If the dollar was used widely enough, huge purchases of dollars by foreigners could significantly affect its value.
This is why, Cohen says, the U.S. takes a policy of “benign neglect” toward foreign countries that want to formally or informally dollarize. You want to buy a bunch of dollars and give them to your citizens in exchange for your old currency? Fine. You want to encourage your banks to offer accounts denominated in U.S. dollars? Have a blast. The U.S. isn’t going to be particularly helpful in helping you set this up, but they’re not going to stop you either.
Ten countries (East Timor, Ecuador, El Salvador, Panama and a bunch of small island nations) are formally dollarized, meaning the U.S. dollar is their official currency (most of them have their own coins though).
Zimbabwe is formally dollarized in that all government spending is in U.S. dollars, but it also recognizes the euro, the British pound, the Botswanan pula and the South African rand (why the Mozambican metical got left out, I have no idea). Stores accept payment in whatever currency you have handy, and sometimes give you change in a different currency than you paid.
One of the things that always surprised me about Zimbabwe was how it just switched to U.S. dollars one day, without any relationship to the U.S. Federal Reserve. It was even under sanctions at the time. Can it just do that?
“It’s totally normal to switch to the U.S. dollar without any relationship to the Fed,” Cohen says. “It doesn’t require an application. Anyone can buy paper money, and anyone can get a dollar bank account. Their own country may restrict those things, but the U.S. doesn’t.”
When Ecuador officially adopted the U.S. dollar in 2000, it carried out a mass currency conversion. The central bank sold their U.S. treasury bonds to the U.S. for cash, brought the cash back to Ecuador and gave Ecuadoreans a window in which to exchange their sucres for U.S. dollars. The U.S. didn’t orchestrate, nor condemn, this process.
Like an introduced species, the U.S. dollar tends to take over an increasingly large percentage of the economy. The only country Cohen knows of that has de-dollarized is Israel, which introduced the U.S. dollar in the late 1970s as a parallel currency, and only managed to get rid of it after a series of economic reforms reinstated confidence in the shekel. Lots of informally dollarized countries, like Argentina, go through waves of increasing, then decreasing dollarization in line with citizens’ confidence in the local currency.
I have no idea what any of this means for Zimbabwe. As I say in the New Republic story, bringing back the Zimbabwe dollar is seen by economists (including the head of the Reserve Bank of Zimbabwe) as a bad idea, but that doesn’t mean it won’t happen.
Dr. Cohen’s written a bunch of interesting, easy to read articles on dollarization from the US perspective
- U.S. Policy on Dollarisation: A Political Analysis (my favorite)
- Dollarization: Pros and Cons
- Is A Dollarized Hemisphere in the U.S. interest?
- Dollarization, Rest in Peace
Thanks for the interview!
I have a piece in Pacific Standard Magazine (well, the website, not like the magazine-magazine) about my trip to Zambia:
Like Tolstoy’s unhappy family, every poor country is poor in its own way, and everyone I meet has a narrative, a creation myth, for how it got this way and why it remains so.
I will spend the next 10 days meeting NGO activists, government officials, and business representatives. They will tell me that Zambia is terrible, that Zambia is fine, and that Zambia is getting better, respectively.
I’m not here to determine which of those statements is true. I’m here for the numbers, the information I can’t get back home. Somewhere between the handshakes, the spreadsheets, the PowerPoints, the annual reports, a story will emerge about Zambia, a story of a country watching its mineral wealth disappear, a country making everyone rich but itself.
I can tell we’re getting close to Kitwe because the number of people crossing the highway increases. The highway has no streetlights, the only light is from the cars, and about halfway there we start to see silhouettes of people in twos and threes running across the road. Our driver never slows down, even as the groups increase to six, seven people, crossing our headlights, stopping in the road to let a car whiz by, running again. I could ask him to slow down, but instead I just look.
There are people there who know a lot more about Zambia’s poverty than I do. If you’re interested in making a donation to any of the organisations I profile in the essay, get in touch and I’ll give you their info.
Originally posted on The Billfold
“Hey, you want necklaces? I sell you necklaces!”
He’s dishevelled, but not more so than most people you see on the street here. He’s wearing a bright green soccer T-shirt, a team I’ve never heard of, and a goatee. He introduces himself as Paul.
This is Victoria Falls, Zimbabwe. I am backpacked, sunglassed, earbudded, on my way to the waterfall. The only way I could be more obviously a tourist is if I had a fanny pack and an “I ♥ Zim” T-shirt on.
“Thanks, but I’m not interested,” I say. I may have actually physically waved him away.
He walks with me for a few minutes, pushing necklaces, wooden giraffes, 50 billion Zimbabwe dollar notes into my chest. I repeat the same thing: Sorry, not interested. Sorry, no.
Everywhere it’s different but the same. In San Francisco it’s the guy who could visit his sick sister in Portland if he could just get 10 bucks for the bus fare. In Paris it’s children with their arms out. In Istanbul it’s amputees on a sheet of cardboard, literally begging.
And my answer is always the same: “Sorry.” I don’t know when I started saying this, when I stopped bothering to lie about being out of spare change, when I stopped thinking before I said it.
Right after Paul peels off, I take what I think is the turnoff to the falls. The path peters out, I turn around and when I get back to the road, Paul is there.
“Where are you trying to go?” he says.
“Just to the park entrance,” I say.
“Oh there’s a shortcut just up there to the right,” he says. “It’ll only take you five minutes. Make sure you make it to the gorge before dark. Spectacular, man, spectacular!”
I thank him, and realize that as he was talking I was thinking oh, he’s a person.
You’re not supposed to give beggars money. That’s the conventional wisdom, right? You don’t know what they’ll spend it on, you might be encouraging them to stay on the street, you’re not addressing any of the structural issues that got them where they are. I used to live in Copenhagen, and whenever I got panhandled (yes they have panhandlers in Denmark), I wanted to roll my eyes, like, all this free money in your country and you want mine?
Needless to say, that attitude is a lot harder to maintain in Zimbabwe. It’s even harder to maintain for me, considering I am here working for a human rights organization. How do I justify spending two weeks in Harare attending conferences, meeting NGOs, working on statements and recommendations to make this country less poor and then, the minute I’m on vacation, neglect to do the one thing I’m actually equipped, actually qualified to do: Give it some fucking money.
The sun is setting when I come out of the park, and Paul is at the exit, soliciting another tourist. He sees me and breaks off.
“How was the park, my friend?” he says.
“Good,” I say. “How’s business?”
“Not so good today,” he says, the full bouquet of necklaces still dangling from his hand. “Look, can you help me out, just with a dollar? I’m hungry.”
I feel like Paul has taken his mask off, he’s talking to me outside of his role as a street vendor, like we’ve both stepped out of character for a second and it’s just us, man to man. I give him two bucks. He thanks me profusely, leaves without asking for anything else.
Two hours later I see him again. This time I’m on a trail behind Victoria Falls’ fanciest hotel. I’ve just eaten a French croissant pudding that cost 7 times what I gave to Paul.
“My friend!” he says.
“Hi Paul,” I say, weirdly happy to see him. I’m travelling alone, and he’s the only person I’ve spoken to all day.
“Hey, do you have some dollars for me?” he says.
“I just gave you two,” I say,
“But I ate with those, man,” he says. “Can you give me some more for dinner?”
As much as I hate to admit it, this irks me. I already gave you money, dude, coming back for more just makes me feel like a mark—like this is a business model. If you don’t get tourist money with merch, get it with sympathy.
“Sorry,” I say.
Later, I wonder what outcome I was actually trying to protect myself against. Giving money to someone who is demonstrably worse off than me? Maybe Paul used that money to buy himself lunch, maybe he didn’t. What am I, USAID? Who cares what he spent it on. If those two dollars (or 10, or 20) magically disappeared from my back pocket, I never would have noticed. Why am I Jay Gatsby when it goes to making me better off, but Ebeneezer Scrooge if it does that for someone else? All that shit about enabling, it’s just an excuse for me to keep what I feel is mine.
In development circles, everyone is all excited about this “just give money” thing. The idea is: Poor people know better what to do with their money than we do, so if you want to help, don’t tie a donation to some entrepreneurship scheme, behavior modification, Excel-sheeted output, just hand over some scrilla, no questions asked.
Apparently it worked in Uganda, another country I have visited to do development work in the daytime and say “sorry” on evenings and weekends. If this idea is real, maybe I should be refusing all the conferences and acquiescing to all the beggars.
I have no idea what I should do. When I travel to developing countries for work, should I set a daily amount that I can afford, say $20, and hand it out randomly? Should I start donating regularly to charities who do that? What is, as the MBAs say, ‘best practice’?
I am in Victoria Falls for two more days. I will probably run into Paul again. He will probably ask me for money, and I will probably give some to him. I might even give him enough to try that French croissant pudding.
First I go to the Air Zimbabwe website and click ‘Online Reservations’. Error 404, this website does not exist.
I call Air Zimbabwe.
‘Hello?’ A woman’s voice.
‘Hi, I’d like to book a flight.’
The line goes dead. I call again. This time, I get an automatic answering system. I press 7 for reservations. Click, wait, ring-ring. Ring-ring. Ring-ring. After four minutes, I hang up.
I wait an hour, try again. I get the ‘hello’ lady.
‘I’d like to book a flight,’ I say.
‘When are you leaving?’
‘Well, if it’s not urgent, can you call back tomorrow?’
I call again the next day, 8.01, right after they open. I get the same lady, she takes my dates, destination, last name.
‘So do I pay over the phone, or?’
‘You have to go to our booking center in Harare. Or the airport, whichever is closer for you.’
The next day I go to the booking office in Harare. It’s open-plan, desks on one side of the room, counters on the other and a couch in between where at least 10 people are waiting. They seem to be lined up to talk to the booking agents at the desks, so I go straight to the ‘pay here’ counter.
I give the counter-lady my reservation number and tell her I need to pay. She tells me I have to go to the desks.
I sit on the couch for 15 minutes, then I’m called to one of the desks. I give the desk-lady my reservation number. She tells me the times of my flights have changed, each one has been bumped back 30 minutes. She also tells me the flights are half the price they told me on the phone. She rips a corner off a piece of paper, writes my reservation number on it. ‘Pay at the counter,’ she says.
I go to the counter-lady again, give her the scrap of paper. She prints out my booking from an old printer, one line at a time. She rips off the little hole-punch strips from both sides, staples it to my flight tickets. I pull my credit card out of my back pocket.
‘Credit card? You have to go back to the desks.’
I wait 15 minutes on the couch again, get called by the same desk-lady, give her back the scrap of paper. She looks at it, types it into her computer.
‘I gave you the wrong price,’ she says. Now the price is back up to what the phone-lady quoted me originally. I give her my credit card and she pulls out one of those old swiper-things. She asks me to write my address on the piece of carbon paper and sign it. K-chunk, k-chunk, she prints out my booking again.
Then she leaves and goes to the other side of the room. I can see her talking to the counter-lady behind the glass. I wait 10 more minutes. She comes back, hands me my receipt and my tickets.
‘Thanks,’ I say.
‘Have a lovely trip,’ she says. ‘Next!’
Photo by Flickr user maarten-sr