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Facing the Currency Black Market

Currencies / Fiat Currency Jun 13, 2011 - 12:07 PM GMT

By: Submissions

Currencies

Lonerangersilver writes: In 1980, I was on a three day visit and my first to Santo Domingo, Dominican Republic. I was representing an American fast food chain looking to expand in the Latin Market. I was there to interview a potential franchisee and I was joined by a Food Engineer to evaluate the market for food suppliers, quality of ingredients, prices, marketing, legal work on the brands, real estate, etc. Of special interest was the candidate’s legal and financial standing and his reputation in the business community. I had Interviews with his lawyers, banks, references, etc. We had to do a lot of work in a short time.


I was not aware that the Dominican Republic was having economic, banking and currency problems. When I arrived at the airport, as usual, I headed for the money exchange booth to buy some local currency. The exchange rate on the window showed 3.45 Dominican pesos to $1 USD. I usually paid for most of my expenses with my American Express card and needed cash for incidentals. I was in line to approach the teller when a man grabbed me by the arm and guided me behind a large pillar. He was talking fast and he was the first Dominican I had spoken to in Spanish. Since the language is spoken differently in almost every country I was trying to comprehend what he was saying and what was happening. There were many people walking by and there was a police officer nearby so I didn’t sense any danger. He pulled out a large wad of Dominican bills out of his pocket and said he wanted to buy my dollars. He was offering me 7.00 pesos to $1 USD. He explained that the Dominican Peso was tied to the value of the dollar at $3.45 and by law the banks and the teller at the airport would buy my dollars at that price and he was offering me a great opportunity.

My mind was traveling at the speed of light and first my survival senses asked questions like. Is it illegal? I saw that the police officer had acknowledged me with a nod of his head. The man assured me that cops didn’t interfere since they did hundreds of transactions daily.

Then my mind moved on the transaction offering my company the benefit of lower costs for my travel thereby paying cash because the credit card charged everything at the official rate of exchange. The next step was to calculate how much cash I was going to need knowing that any remaining money would have to be exchanged back into dollars at the official rate.

Next was the negotiation because that is how it is in most Latin countries. In my mind I thought I could get an 8.00 peso exchange from the man, so I said I will take 8.50 he then went to 7.50 and we settled at eight.

We made the exchange and I headed to my hotel. Once in my room I had to call our New York office. After I finished, I asked to be transferred to our accountant. I told him what had transpired knowing that I usually turned in a receipt from the official exchange teller with my expense receipts and use that exchange rate. I asked him how I could report my expenses at the rate I had negotiated. He said, “You can’t do that, you have to furnish a receipt otherwise we look at the currency rates to verify that you are in the ballpark.” So I prepared my expense report as instructed. Since my personal reputation was very important to me, I attached a letter to the expense report outlining the conversation with the accountant.

Basically I earned an amount almost equal to my expenses during the trip except for the airline tickets since I purchased them with my credit card. It was about $600. This was one of earliest experiences in currency exchanges and the black market. I discussed this with a local businessman who said it was not unusual at all because outdated banking decisions put people in those situations. The Dominican Peso devalued to 14.00 to $1 USD in 1993 and today it is traded at around 36.00 to $1 USD. It is now allowed to float freely and changes frequently. As a result there is probably no black market there dealing in US dollars. Not like the one I remember anyway.

I am afraid that I am going to use the lessons learned in this experience very soon in the US because we are heading into a worse situation than The Dominican Republic back then and in Belarus now. My recommendation is that you convert as many of your assets into silver and gold now and when the proverbial shit hits the fan you will be buying assets a dime on the dollar, rather than losing more than half of your net worth. There will be people lining up to buy your silver and gold at over the Comex spot price and you will be calling the shots. Why, you might ask? Because fear and desperation usually occurs after a devaluation and you want to be confidently doing the buying

Lonerangersilver

http://lonerangersilver.wordpress.com/

© 2011 Copyright Lonerangersilver - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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