Problem

Currency black market

Incidence:

In the face of the chronic shortage of foreign exchange in some countries, the currency black market becomes a thriving business sector. Companies are forced to resort to illegal methods to obtain the dollars needed to maintain their operations. Those businesses which manage to earn some foreign exchange 'salt' it away abroad for fear of a freeze on foreign currency accounts. This has become extensive in certain countries such as the Philippines. With the flow of fresh foreign loans and investments reduced to a trickle and the ensuing strict trade and exchange controls, only companies involved in priority industries, such as importers of oil and food and manufacturers for export, have access to legal dollars. For non-priority companies, about the only source of dollars for imports is the black market. Another example is China, where there is a flourishing foreign currency black market and speculative trading in scarce products. There is a small but lucrative black market operating in actual foreign currencies, especially US and Hong Kong dollars. Some official organizations may also have been involved in currency trading and speculation, using money obtained through Bank of China loans.

 

[Former socialist countries] The currency black market in the former socialist countries reinforces a form of internal economic discrimination since one of the ways Eastern bloc countries earned hard currencies such as dollars was to sell scarce consumer goods in stores that only accept hard currency. Even when the shelves in state stores were empty, there was ample stock in hard-currency stores. The greater the shortages in state stores, the higher the premium consumers would pay for dollars on the black market, which even in transition times may still be the only place they can get them. In Poland, at the beginning of 1983, the black-market premium was about six times the official rate. In Romania, it was 250%. In the other socialist countries, the black-market rate lies between 50% and 200% above the official rate. Only in Hungary, which enjoys an ample supply of consumer goods, is it under 25%.

Broader Problems:
Underground economy
Narrower Problems:
Reliance on cash exchange
Related UN Sustainable Development Goals:
GOAL 10: Reduced Inequality
Problem Type:
D: Detailed problems
Date of last update
22.05.2019 – 16:16 CEST