[This post is written and copyrighted by FIRE Finance (http://firefinance.blogspot.com).]
Of late our US dollar's value has been falling with respect to a bunch of international currencies. Over the last couple of years the Euro has been persistently beating the US dollar. Have you ever wondered what happens when the value of a currency falls? You'd be surprised to see the reality of such a situation.We were left agape when we came across a real life situation demonstrating the decline of a country's currency. Richard Downes (BBC News) reflects on his month long stay in Zimbabwe and his fleeting status as a millionaire which lasted only a few seconds. In his words:
As I sat in the coffee shop in the airport fiddling with my bill, I reflected on the extraordinary state of affairs in Zimbabwe.
I had just bought two cups of tea and two glasses of water and, reaching into my bag, I took out a massive wad of Zimbabwean dollars. New and crispy Z$10m notes. Clean and sleek.
Then I looked at the bill. The charge was Z$204m! That would make a serious dent in my brick of notes.The Zimbabwean dollar is one of the most worthless currencies in the world so any notions of being a millionaire, or even a billionaire, lasted all of a few seconds.
Not so long ago Z$204m would have bought you a highly profitable gold mine in the south of the country, near Kwekwe. A huge plant with hundreds of employees and land and buildings.
A year or so later it would have bought an estate of expensive houses in one of the more salubrious suburbs of Harare.
Even quite recently, you could still have bought a car with Z$204m, but today all you can get is a measly cup of tea. It is a pathetic state of affairs and a sign of the depths to which the country has fallen.
Zimbabwe's financial crisis has rendered their dollar as one of the world's most worthless currencies. Spiraling inflation has coerced the country's administration to introduce a Z$50m note (see picture above). Richard then goes on to analyze the country's fall with Paul who has had plenty of experience about the collapse of Zimbabwe. You can follow it here.
Reading this article forced us to contemplate on a few questions. The most noteworthy of them being about the type of assets we should hold on to when a country's currency declines. Should we invest in "material" assets like real estate, farm land, machinery, factories, malls, precious metals, collectibles and likes? What are the best ways of converting a falling dollar into assets which can retain value in a crumbling market or economy?
We are looking forward towards your thoughts and reflections on this issue.
Image Source(s): iStockPhoto
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