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Currency Crises are Breaking Out
Throughout the World




In 2013 and 2014 we've witnessed more and more currency crises having broken out in various countries.
Some of the most notable examples are the countries of Japan, Venezuela, Argentina and recently, the Ukraine has joined the list as well.

Of course, the crises themselves vary in nature and cause - which we will analyze in this article, country-by-country, currency-by-currency. Some are deflationary crises, other inflationary. But ironically government intervention can easily turn the tide, turning a deflationary crisis into an inflationary one.

Experts have been warning of a major currency crisis to break out around, yet many were expecting the US dollar or the euro to fall first. Despite the two major currencies showing obvious vulnerabilities (and many pointed out to an imminent demise of the dollar and the euro), it seems like the smaller "bricks" (the smaller currencies) are falling first.

And the smaller currencies struggling doesn't mean at all that the problem is negligible.
When we say "small", we think of currencies, such as the Venezuelan Bolivar - used by the World's 9th biggest oil producing country. A crisis in Venezuela can have hard to predict negative effects on the rest of the World.

During recent years, currency crises have been spreading throughout the World. It's a trend.

The first (classical) and most notable example was the recent horrific Zimbabwean Zimbabwean hyperinflation. More have followed, although we mustn't confuse the situations.

The current currency crises can be the first phase of a major global crisis. The events can and most likely will propagate to many other parts of the World.

The dollar and the euro are holding strong because of the tremendous interests, major banks, major demand in international trade (the dollar being the international reserve currency, the euro is its biggest rival) and, of course - the petrodollar system.



For a start, let's see an overview analysis of the mentioned countries' cases:



 Venezuela


Despite being an oil-rich country - the 9th biggest oil producing country in the World, which claims to have the biggest reserves (unexploited) in the entire World!

Despite being able to sell so much petroleum on a global scale (and earning over 100 billion dollars per year from it), Venezuela is experiencing US dollar shortage, which according to a Financial Times article - is a "mystery".

Several years ago, Venezuela started bypassing the petrodollar by selling oil in other currencies - like oil for rubles in the trade with Russia. Yet, dollars are still vital in the global financial system.

Could Venezuela's dollar avoidance trick have backfired?

The country has recorded an annual inflation rate above 50 % last year, stringent government price controls and exchange rate controls. All of these accompanied by a shortage of basic goods, riots, increase of violence throughout the country.
According to this article, over 24,000 people were killed in Venezuela last year.
This means a homicide rate of 79 per 100,000 people.

Within a year, the Venezuelan Bolivar has devalued more than 200 % in comparison with the US dollar.



 Japan


The Japanese currency is being diluted by the famous "Abenomics" measures.

The country of the rising Sun is trying to cope with the chronic one and a half decade-long deflationary period by intense monetary easing.

What is interesting to observe is (not the value of the yen compared with the US dollar or the euro or other major currencies), but the value of gold in Japanese yen.

While 2013 has brought a gold crash (as first predicted by Prime Values), which was also elaborated in this Prime Values January 16, 2013 article - in Japan the situation was a lot brighter for the shiny yellow metal, as you can see on the graph below:


Gold's 2 year price in JPY

Gold's 2 year price in JPY




While in Europe and North America, investors started losing trust in gold, the Japanese citizens turned to hard gold investments when seeing their currency lose value.

Experts have warned that Japan could experience a runaway inflation.
If this happens, then a Japanese economic crash could even destroy the dollar, which could drag the euro along.

One of the most likely scenarios for this to happen is through a Japanese bond market crash, which would propagate to the US economy.



 Argentina


Once again, Argentina has fallen into an economic crisis. The country has already went a major crisis between 1998-2002 - what we call the "Argentine Great Depression".

Currently, Argentina has low forex reserves, high debt and experts warn about economic mismanagement.

This Washington Post article speaks about a "coming collapse" and inflation that might hit 30 % per year.

It is also possible that the Argentine peso was the target of external speculative attacks, which brought it down.

Officially, inflation was above 10 % last year, but analysts suggest it was as high as above 28 %.

As the Argentine peso is losing value, people are turning to the US dollar. The government has banned US dollar savings, but that doesn't mean buying dollars are forbidden.

Long queues stand in front of bank offices. The Argentineans are buying US dollars and precious metals as a hedge.



 Ukraine


The Ukraine's aching economy was heavily hit by the early 2014 conflicts.

The hryvnia has reached a 5-year low in terms of value against the dollar and the euro. Experts are also predicting a GDP decrease by up to 10 %. And even this is only part of the more "optimistic" scenarios!

As the political events are severely affecting the Ukraine both socially and economically, the hryvnia has already registered an all time low exchange rate to the US dollar.

The country is strongly dependent upon natural gas imported from Russia, whose constant flow at an adequate price is questionable, as the commodity can be another weapon used in the conflict between Russia and the Ukraine.

An interesting thing to notice is that if the Russian-speaking parts of eastern Ukraine break away (as some analysts predict), then the country will lose its most productive industrial areas - which will tremendously hit the GDP growth, even on the long-term. Most of the rest of the Ukraine being more dependent on agriculture, with very low industrial production, few natural resources.



Other Crises to Occur Elsewhere


We've seen other economic crises igniting currency crises. Trade wars (the Russian gas exports are a good example) are also characteristic to such economic turmoil periods.

The most notable examples of major financial crisis-related events last year were about the Greek and Cypriot crises.
The latter had culminated in a wealth tax (as a frozen bank deposits tax).

A currency crisis can break out in your country as well. Are you prepared for this kind of scenario?

Once it starts unraveling, it will be too late to preserve your assets, therefore it's advised to take preventive measures before it's too late.

Naturally, it's hard assets that are more reliable than currencies on the long term. Do note the fact that investments in precious metals, for instance, is a long term action - price fluctuations naturally occur, but in the long run, gold, silver and other metals will hold value much better than any currency.

Jim Rickards' "Currency Wars" book is that warns us of the next major crisis - caused by financial warfare.





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