Currency

Investments into various cryptocurrencies are in trend nowadays, and Bitcoin’s leadership position is well-deserved. It was designed by Satoshi Nakamoto in 2008 as the first digital money ever. To put it briefly, it is a digital payment method that allows people from different corners of the globe to transfer the funds, buy products and pay services by means if digital currency. It is not under the governmental supervision and is totally decentralized which ensures anonymity, privacy protection, and secure transactions. It is done in the peer-to-peer method meaning that people don’t use any mediators, for instance, banks as their financial transaction anymore. Also, the code is open source and can be altered by anyone. The investments into Bitcoin were considered to be more fruitful than into gold. It was a pioneer in this field – later the invention of a blockchain technology, the main engine of all cryptocurrencies, gave birth to numerous digital currencies that claim the king’s place.

Three years after Bitcoin was launched, Litecoin (LTC) was invented in 2011 by former Google engineer Charles Lee. So what is Litecoin? Having a very ambitious goal to become the second best after Bitcoin, the main aim of the founder of this advanced digital currency was to find a way to improve Bitcoin. It is an open source software that possesses pretty much the same characteristics as its predecessor. It can boast the secure process of money it manged totransaction, the fast transfer rate, a shared digital storage platform, and support of privacy. The position of Litecoin on the financial market is quite impressive – it managed to fulfill its task of becoming the second best. What about the enhancement which makes it a more efficient version of the previous currency? It is time to find out, who will be the winner in Bitcoin vs. Litecoin match. The divergences of these two cruptocurrencies are not very dramatic yet if to work with both systems; they become quite noticeable.

1. One of the principal differences between these two currencies deals with the maximun number of coins that can be obtained through mining. Bitcoins limit is 21 million of coins – all of them will be issued, some experts claim that will happen in 2035, the price will get even bigger already existing coins. On the contrary, Litecoin can release 84 millions of coins, which are a significant advantage in favor of this currency. There is a great difference in price – Bitcoin remains one of the most expensive digital currencies with thousands of dollars per unit, Litecoinhas much more democratic price – up to 50 dollars per unit. The market capital differs – 10,467,596,650.78 dollars Bitcoin and 540,274,528.26 Litecoin.
2. Litecoin transactions are processed four times quicker than Bitcoin. By default, the transactions of both networks are happening immediately. The response time when other participants need to confirm the operation can vary. In case of Bitcoin, the time of typical confirmation is somewhere over 9 minutes a transaction. Litecoin, it takes only 2.5 minutes. The delay in the transaction can force back the clients who can conduct the same transaction four times faster with Litecoin. This is possible due to Litecoin faster block generation, which allows handeling of a greater number of transactions. Most clients choose zero-confirmation transactions that need no confirmation at all. The same problem arises with block time. Bitcoin has 10 minutes block and his rival 2.5 minutes.
3. Mining divergencies. Both these currencies are generated by mining. This is an important difference all those miners hunting coins as they influence the process of mining. The most frequently used method of mining Bitcoins is ASICs – Application-Specific Integrated Circuits. These are hardware systems that have been specifically created with the purpose to mine coins. It works with the SHA-256 hashing algorithm which means that the work can speed up during parallel processing. This increases the level of difficulty miners. Litecoin uses the scrypt algorithm or s-crypt which is considered to be much easier. It was created to oppose the custom hardware used in ASIC mining. It is generally considered to be more understandable an average user.
4. Last but not least factor concerns the environment. Tremendous level of energy consumption by Bitcoin mining has already become the legend. The popular joke has it that its mining takes as much energy as the population of the whole Ireland. Litecoin is not so destructive to the environment, and its energy efficiency is a good example.

The match Litecoin versus Bitcoin does not have an unambiguous winner, as both these digital currencies possess a set of characteristic features, which are a necessary part of proper money transfer. But the financial world has a volatile nature. The situation can change dramatically just within a week’s time. Only time can decide whose approach to digital transactions has been more appropriate. Nowadays, Bitcoin and Litecoin move together on parallel roads proving to be the king and the queen of digital currency world.

CHAPTER ONE [pic] 1. Introduction At independence in 1980 the Zimbabwe dollar replaced the Rhodesian dollar at par at a rate which was higher than the American dollar. Although this quickly deteriorated, it was not until the late nineties that a series of events led to the demise of the Zimbabwean dollar. In 2008 in an 18-month ‘experiment’, foreign currency was accepted as legal tender for transactions with a set number of retailers. Honorable Members will be aware that in the hyper-inflationary environment characterizing the economy at present, our people are now using multiple currencies for day to day business transactions, alongside the Zimbabwe dollar. These currencies include the South African Rand (ZAR), United States Dollar (USD), Botswana Pula (BWP), Euro, and British Pound Sterling, among others. In line with the prevailing practices by the general public, Government is, therefore, allowing the use of multiple foreign currencies for business transactions, alongside the Zimbabwe dollar. ”[1]

However, months later, in March of 2009, the newly instated Finance Minister, Tendai Biti, announced that the Zimbabwe dollar would be suspended indefinitely. [2] The main argument in this piece is that the Zimbabwean crisis in the 2000s and the subsequent stabilization of the economy were made possible by the dollarization of the Zimbabwean economy in 2009. This article investigates the recent monetary experience of Zimbabwe with dollarization. It shows how dollarization has allowed Zimbabwe to quash hyper-inflation[3], restore stability, increase budgetary discipline, and re-establish monetary credibility.

This paper analyses the effects of the dollarization of the Zimbabwean economy in 2009, in the wake of devastating hyper-inflation and a political crisis that reached its zenith with the electoral crisis of 2008. Though there is a direct nexus between the two processes, the former cannot be exclusively ascribed to the latter; there are a host of other issues that have contributed to the economic and financial breakdown in Zimbabwe. 1. 11 The Background to the Problem

The Reserve Bank of Zimbabwe (RBZ) was forced to revalue the Zimbabwean dollar, three times in a space of less than three years, because of rampant hyper-inflation in the country. In August 2006, in an operation called ‘Sunrise 1’, the RBZ removed 3 zeroes from Zimbabwe’s currency and promised to introduce a new currency in the near future. In August 2008, exactly two years after the first revaluation, the RBZ slashed a further 10 zeroes from Zimbabwe’s currency, calling this ‘Sunrise II’. Rampaging hyper-inflation forced the government to erase another 12 zeroes in early February 2009.

This was ‘Sunrise III’. Thus, a staggering 25 zeroes had been slashed from the Zimbabwean currency within a space of only three years. The hyper-inflation was just unsustainable, and when the Zimbabwean dollar was officially shelved in March 2009, the highest single denomination was a 100 trillion dollar note. When the 100 trillion dollar note was introduced on 16 January 2009, it was worth the equivalent of US$ 30 on the parallel market. The establishment of the Government of National Unity (GNU) saw the dollarization of the Zimbabwean economy and the shelving of the Zimbabwean dollar in March 2009.

Dollarization is a portfolio shift away from domestic currency to foreign currency, to fulfil the main functions of money – store of value, unit of account, and medium of exchange. It is typically a result of unstable macroeconomic conditions and is a rational response of people seeking to diversify their assets in the face of heightened domestic currency risk. Efforts to revive the battered Zimbabwean economy, largely through the dollarization of the Zimbabwean economy are assessed through the lens of the banking sector.

The banking sector thrived during the peak of the Zimbabwean crisis, as most banks became key players in highly speculative activities in areas such as Zimbabwe’s bullish stock exchange and real estate. The profits that were being realized in the banking sector trickled down to their workers who became the best remunerated workers amongst all the sectors in Zimbabwe. With dollarization of the economy in 2009, the once vibrant banking sector was suddenly facing the grim prospect of disintegration, which had plagued sectors such as teaching during the peak of the Zimbabwean crisis.

The banking sector was adversely affected by the dollarization of the economy, as the speculative activities that were reaping huge rewards for the banks were wiped out overnight by the adoption of more stable currencies at the expense of the precarious Zimbabwean dollar. This spelt disaster for the banking fraternity, as most banks in the first few months of dollarization struggled to pay their workers in hard currency and instead were forced to downsize their operations and lay-off some of their employees.

The paper argues that in complete contrast to most sectors in the economy, the banking sector boomed during the crisis, and the Zimbabwe Congress of Trade Unions (ZCTU) monthly remuneration lists in 2008 saw the banking workers consistently topping the lists. However, the dollarization of the Zimbabwean economy turned the tables on this once prosperous sector, as bank workers like the bank tellers and other clerical workers found themselves being laid-off, as most banks struggled to remunerate their workers in hard currency. 1. 12 Objectives ? To assess the performance of the banking sector before and after dollarization. To investigate the effects of dollarization of the Zimbabwean economy on the banking sector. ? To investigate the advantages and disadvantages of dollarization on the banking sector. 1. 13 The Research Problem The effects of dollarization on the banking sector after the dollarization of the Zimbabwean economy. 1. 14 The Research Question What effect does the dollarization of the Zimbabwean economy have on the banking sector? 1. 15 Sub Questions 1. What is dollarization? 2. What are the forms of dollarization? 3. What are the costs of dollarization? 4.

What are the benefits of dollarization? 5. What impact does dollarization have on the banking sector? 6. Was dollarization a success in Zimbabwe? 1. 17 Significance of the study To the researcher The research is in partial fulfillment of the requirements of a Bachelor of Commerce Honours Degree in Accounting at the National University of Science and Technology. It will allow the researcher to have a deeper understanding and both theoretical and practical knowledge in the area of research and encourage a practical application of theoretical concepts on the area under study.

To the banking sector The research is set to provide enlightment on the impact of dollarization of the Zimbabwean economy to the banking sector. To the university The research project will assist the university in coming up with a curriculum on the study of the dollarization of the Zimbabwean economy and the impact that it had on the banking sector. 1. 18 Assumptions ? All respondents have adequate knowledge of the developments in their particular organizations. ? Respondents will give truthful responses adequate to make reasonable inferences. The researcher assumes that respondents will respond within a reasonable time period to enable the timetable to be adhered to. ? The researcher assumes that he will have enough financial resources to meet all the expenses. ? There will not be institutional disturbances that could delay completion of the project. ? Secondary data will be available. 1. 19 Literature Review Data will be collected from the textbooks, libraries, newspapers, journals and the internet. 1. 20 Theoretical Framework Was the dollarization of the Zimbabwean economy a success to the banking sector?

The research intends to use both primary and secondary sources of data. These sources of data will help to explore an analysis of what past researchers have brought to light in relation to the impact of the dollarization of the Zimbabwean economy on the banking sector. It is under this section that the researcher intends to explain various forms of dollarization. The benefits and costs of dollarization shall be explored through exclusive use of the internet and various text books and journals. 1. 21 Definitions of Terms

For the purpose of this study the following abbreviations and definitions will be used. Hyper-inflation – Ruinously high increase (50 percent or more per month) in prices due to the near total collapse of a country’s monetary system, rendering its currency almost worthless as a medium of exchange. Although hyperinflation is caused mainly by excessive deficit spending (financed by printing more money) by a government, some economists believe that social breakdown leads to hyperinflation (not vice versa), and that its roots lie in political rather than economic causes. 4] Dollarization – occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency as a store of value, unit of account, and/or medium of exchange within the domestic economy. The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency. [5] BWP – Botswana Pula GNU – Government of National Unity USD – United States Dollar RBZ – Reserve Bank of Zimbabwe ZAR – South African Rand ZCTU- Zimbabwe Congress of Trade Unions 2. 00 Research Design

Sample of people to send questionnaire is going to be based on knowledge, accessibility and convenience. 2. 11 Instruments for Data Collection The research will be based on both primary and secondary methods of collecting data which include surveys, interviews, questionnaires and published information and journals. The researcher will use a number of methods in the collection of primary and secondary information. The following methods will be used to gather primary information: ? Questionnaires- these will be designed and hand posted to the selected respondents.

Sample of people to send questionnaire is going to be based on knowledge, accessibility and convenience. ? Interviews- interviews will be conducted to collect some of the information required in the research. The following sources will be used to tap all secondary data available about the subject: ? Use of textbooks ? The researcher in the course of the research will access newspapers, financial reports, business journals and the Internet. Information will also be attained through discussions with classmates and fellow researchers. 2. 2 Data Presentation and Analysis There will be use of tables, graphs and statistical tools/methods including pie charts in data presentation and analysis. These will be used first to present the data obtained through the questionnaires in the interviews, which will then make possible the analysis of the data in a more objective and quantitative manner as well as less subjective and qualitative way. A report shall then be compiled and presented on the final outcome of the findings and analysis. 2. 13 Research Timetable and Budget (Project Scheduling)

Research Time Table SectionChapterMonth/Period Introduction1Two weeks Literature Review2Two weeks Research Method3Four Weeks Data Presentation ; Analysis4Four Weeks Conclusion and Recommendation5Two weeks Research Budget Cost CenterCost Amount (USD) Typing and Printing$20 Photocopying$20 Internet$30 Traveling costs$50 Food Costs$30 Total$150 2. 14 Research Limitations ? The research is going to be limited due to the studies that will be going on concurrently with the research project and the time committed to the research project will be reduced. Time, unforeseen institutional disturbances at N. U. S. T. may delay timely completion of the research project. ? Lack of cooperation – there could be unexpected lack of cooperation from respondents, if any are to be involved in the project. ? Possible limited access to confidential information, which might be useful for the purposes of the research. ? Financial constraints – The research could be affected by the writer’s limited funds to fully meet all due costs to be incurred during the research 2. 15 Source Referencing

The “According to “Kararach G, Kadenge P, and Guvheya G, (2010). CURRENCY REFORMS IN ZIMBABWE: AN ANALYSIS OF POSSIBLE CURRENCY REGIMES,” will be used. 2. 16 Bibliography (a) Books The Harvard way of referencing shall be employed (b) Journals The “According to “Kararach G, Kadenge P, and Guvheya G, (2010). CURRENCY REFORMS IN ZIMBABWE: AN ANALYSIS OF POSSIBLE CURRENCY REGIMES,” will be used. ———————– [1] (Acting Minister of Finance, Cde Patrick Chinamasa on Budget Presentation to Parliament on 29 January 2009. ) [2] Ibid. ; Biti, T. ‘Statement on the 2009 Budget’, Presented to the Parliament of Zimbabwe by the Minister of Finance, 17 March 2009, http://www. zimtreasury. org [3] Hyper-inflation is defined by Hanke (2008) as a situation where the year- on- year rate of inflation breaches the 12,875 percent mark. Zimbabwe began to hyper-inflate in 2007 and hyper-inflation was officially reported by the Zimbabwe Central Statistical Office to have peaked at 231 million percent in July 2008. [4] http://www. businessdictionary. com/definition/hyperinflation. html [5] http://www. answers. com/topic/dollarization#ixzz2BXaOhuVJ ———————– 1

Ltd is exposed to foreign exchange risk because it buys some of its production inputs from overseas and pays for them in foreign currency; has sales revenue in foreign currency and competes with other manufacturers whose costs are denominated in foreign currency. The company imports from New Zealand, Japan, and the United States. The company’s foreign currency payable are in the US Lars, NZ dollars, and Japanese yen. On the other hand, the sales are mostly conducted in US dollars.

Proceedings of the International Academy for Case Studies, Volume 10, Number 2 Lass Vegas, 2003 page 74 UP Lad’s exposure environment consisted predominantly of the US dollars, the NZ dollar, and the Japanese yen. The foreign currency denominated sales were about 52 percent of total sales: 40 percent in US dollars, and 12 percent in New Zealand dollars. The company’s estimate of US dollar denominated payable was 36 percent of total sales: 19 percent in US dollars, 12 percent in Japanese yen, and 5 percent in New Zealand dollars.

In general UP Ltd gives customers an average credit period of between 3 to 6 months while the average credit period for all foreign currency denominated payable was 3 months. There was therefore a working capital gap as the collection of accounts receivable was longer than accounts payable. This situation was made worse by the fact that 40 per cent of the sales were denominated in US dollars and the US dollar was weakening against the Australian dollar. There was no cover taken out for the exposure in US dollars because the financial accountant who acted as the company’s exposure manager thought the US dollar would shortly strengthen.

Previously the US dollar was stronger than the Australian dollar and the company had gained from the US dollar denominated receivables. This experience had apparently, surprisingly, made the company’s exposure manager consider it inappropriate to hedge the US dollar. The responsibility for identifying FEMME was in the hands of a financial accountant, with the assistance of the general manager. They hedged 50 per cent of the transactions for accounts payable in Japanese yen, and accounts receivable in New Zealand dollars. The financial accountant, in consultation with the general manager, bought forward contracts to cover the exposures.

Most senior members of the company were concerned with manufacturing, promoting and marketing products rather than foreign exchange exposure management. It was increasingly becoming difficult for the general manager to meet the financial accountant in order to manage FEE because the general manager had to deal with other company duties. Previously, the general manager and the financial accountant met at least once a day to assess foreign exchange market movements. The increasing inability to meet the general manager as frequently as before was making the financial accountant concerned.

The financial accountant was anxious that he should be left alone to make decisions in matters as volatile as the foreign exchange movements. The financial accountant felt that it was important to specify Job descriptions in order to attach responsibility for the monitoring and compilation of foreign exchange information. Presumably, he hoped, that would lead to increasing resources in his section. He explained: The two clerks in my section are responsible for helping me in ash management, pension management, as well as compiling foreign exchange exposure management forecasts. The finance section is very understaffed.

The engineering and marketing functions were considered more important than financial management. The finance section was not only understaffed, but it also lacked properly qualified and experienced personnel. The general manager thought that taking personal interest in treasury matters would mitigate the sense of alienation that was perceived by the financial accountant. The lack of understanding about the importance of FEMME among most of the company officers was discernible urine the interview. Most senior managers considered the primary tasks in the company to be the operational activities, namely; manufacturing, procurement, and selling.

Lass Vegas, 2003 page 75 In terms of the organizational structure for exposure management, members of the company felt that centralization should be pursued subject to other considerations. One senior member of the company said: The task of identifying and managing foreign exchange exposure is too onerous to be left in the hands of only one functional unit The financial accountant was a relatively Junior officer in the company and had robbers in trying to obtain information he needed to manage exposure.

Since FEE is a result of activities that transcend one functional unit, and can be constrained by lack of resources such as trained and experienced staff, and lack of appropriate equipment, this seemed to call for a company-wide policy from the top. The dialogue with most members of the company confirmed that there was no company-wide policy for FEMME. The next point was to consider the extent of risk aversion. Most members of the company were keen that currency risk should be avoided as much as possible.

Some of the members wondered why the company should not invoice customers in Australian dollars rather than foreign currencies. As to the general attitude to foreign exchange risk, some members said that they generally preferred average expected return with average risk to high return with high risk for any business involving foreign currency denominated receivables and/or payable. But if the company was considering projects which involved no foreign currency receivables or payable, then high expected return and high risk projects could be considered.

One of the senior officers, however, pointed out that foreign exchange considerations are but one factor. He was supported by another senior officer who said that sometimes the company may have other overriding strategic considerations to take into account, such as obtaining a share of the market even if that means at the expense of incurring foreign exchange loss. The company’s foreign exchange rate forecasts were mainly obtained from banks and publications such as the Financial Review newspaper. The information on foreign exchange rates was prepared manually.

The lack of computerizing was considered hindrance to better monitoring of exposure management. The influence of the satisfaction with previous foreign exchange forecasts on hedging could only be commented on by the financial accountant and the general manager who carried out hedging of FEE. They both said that satisfaction with previous foreign exchange forecasts had minimum influence on the way they hedged. They were not confident with the forecasts they used. As they said: Foreign exchange forecasts are Just forecasts, they are never the same as the actual exchange rates so we are usually less confident about them.

The extent of hedging is a situational matter. UP Ltd was involved in foreign exchange transactions at least once a fortnight. It was evident that the intensity of involvement in foreign exchange transactions did not have any influence on the hedging behavior. In spite of the fact that the US dollar denominated receivables were left exposed, Proceedings of the International Academy for Case Studies, Volume 10, Number 2 page 76 most members felt that the extent of involvement in foreign currency denominated business should be accompanied by more hedging activity.

1. Why is BSP changing the design of money?

We use money as a medium of exchange in everything we buy or sell. That’s why some people are creating ways to make exact copies of money in order to do whatever they want. This is the main reason why BSP (Bangko Sentral ng Pilipinas) changing the design of the money regularly. The central banks regularly change the designs of the money – whether coins or paper bill (banknotes) mainly because to make it safe from counterfeiters. By regularly changing the designs of the money, it will be very difficult and costly for counterfeiters to produce exact copies of our money and also we can protect the integrity of our currency against criminals.

2. How will BSP prevent the spread of counterfeit or fake money?

BSP prevent the spread of counterfeit or fake money by regularly changing the design of money. By upgrading the security features in all of our paper bills (banknotes), the BSP make it easier for the public to detect fake money from the real one, while at the same time making it nearly impossible and very expensive for counterfeiters to replicate our money. The BSP also mount a nationwide information campaign to educate our people on how to tell genuine banknotes from counterfeits.

3. What will happen to the existing currency in circulation?

The present banknotes will remain in circulation and will continue to be accepted as legal tender for at least three more years, it will be the start for the old banknotes demonetization will be announced and a transition period or changing of new banknote will be provided to the public. Based on previous currency retirement or demonetization program of the BSP, this will give enough time for the public to make a full transition to our new generation currency. A separate schedule will be followed for coins. Appropriate announcements will be released before and after the introduction of our new banknotes and coins to guide the public and ensure a smooth transition to our new currency.

4. How does the BSP select new designs and security features for our new generation currency notes?

The BSP has a Numismatic Committee who then approved which designs were to be used on the money. They initiate new design studies and also propose upgraded security features for consideration by its Monetary Board which in turn submits these to the President of BSP for final approval. Once a selection is made, the Monetary Board sends the proposed new designs for the approval of the President of the Philippines.

5. What are the considerations in the selection of security features for our new currency?

The BSP did research and benchmarking on security features that are available from global suppliers and are being used by other central banks. The security features range from level 1 to level 4 or from highly visible to hidden security elements that can be detected only by sophisticated equipment. The layered security features are as follows:

Level I: Security features which can be easily recognized by the public without use of special instrument. These are the “look”, “feel”, “tilt” elements in the notes such as watermark, security thread, security fibers, and others.

Level II: Security features recognizable by professional cash handlers/bank tellers with the use of magnifying lens or ultraviolet light. Examples are fluorescent features and security fibers, microprinting.

Level III: The hidden or covert security features reserved for the use of the Bangko Sentral.

Level IV: Forensic security features for the use of law enforcers in testifying whether a banknote is genuine or counterfeit. Forensic features are detectable at specialized laboratories.

Gold is one of the oldest currencies known to man and is highly valuable as an inflation hedge. Earlier the governments around the world used to settle their debts through delivery of certain amount of gold. Even the US dollar was backed entirely by gold till 1971. But once the backing of gold from the dollar was removed the dollar was not worth a lot. This was mainly due to the fact that it was easier to get something out of nothing when speaking of printing money.

When done for free without backing it up equal value of gold it was hard to resist printing it in excess. That is the reason why no paper currency has been able to hold its value for a very long period of time. Most are ruined in a few years time which some take a little longer than a few years. Even the strongest paper currencies of the world, the American dollar and the British pound have lost 95% of their value over the past century. On the other hand gold is still able to retain its original worth. Anytime is a good time for making investments in gold.

There are different forms that gold can take for the purpose of investment. The most common is gold bullion, which comes in the shape of bars in different weights and sizes. Unlike stocks the brokers charge minimal commission on gold bars and thus they are the most cost efficient investment that can be made. (Emanuel 2008) Why to Invest in Gold: The main reason why gold is so important to the economy is that it has been preserved successfully as wealth for thousands of generations. The same cannot be said about paper currency.

This idea of gold preserving wealth is extremely important in our economic environment where the US dollar is declining and there is a rise in inflation due to high commodity prices. Gold has historically served as a circumvent against both the situations. When inflation rises gold appreciates. Also, the reason for gold benefiting out of the declining dollar rate is that gold is priced with the US dollar or with paper currency globally. The declining rate signifies that the buying power of the paper currency is declining. Drawbacks of Investing in Paper Currency:

Throughout history, while there has been a rise and decline in paper money, money like the Confederate money, gold has always remained stable. Gold is a solid investment which does not move up and down in its value; instead it’s the value of the paper currency which is relative to the amount of gold changes. Today, gold remains a solid investment, which never fluctuates; rather, the value of paper currency relative to the amount of gold changes. Gold is a perfect currency as well as investment as there are very few, almost no declines in its rate.

Also gold cannot be created just like any other paper currency can. Every paper currency through out history has fallen to its intrinsic value: zero but this is not the case with gold, currency may depreciate but the value of gold will appreciate. For a very long time dollar has been considered as the strongest currency in the world and that is the main reason why many foreign governments have bought the dollar hoping it would bring about long term economic stability to them, which in fact has not been the case as it has only lead to the runaway inflation we see around the world at the moment.

This is mainly due to the large demand for dollar which is lead to inflation; the high demand for one paper currency devalues another currency, that’s how the cycle goes. One currency appreciates at the expense of another that depreciates. Investing is paper currency is a risky option as the rates constantly fluctuate in comparison to gold which remains stable most of the time. (Amoss, 2008) Advantages of Investment in Gold: The biggest advantage of investment in gold is that it is not affected by the economic policies and where the bank accounts can be frozen, gold is freely available.

Also, gold is the most reliable of all long term investments, even after years of investment in gold there are only very few occasions when gold depreciates, so investment made in gold are safe investments. Gold is the only type of investment that can be cashed at any time anywhere in the world. Gold is the most liquid commodity in the market; it can be easily sold in different markets around the world. The price of gold is not affected by a company’s profit unlike stocks and bonds which when invested in give a return which is dependant on the company’s profit, this is not the case with gold, a return is promised every time.

That is why investment in gold to diversify can either be done conservatively or aggressively, in either case a definite value will still be added to the portfolio. The price of gold is dependant on supply and demand, US dollar rates, inflation and interest rates. But the biggest advantage of gold is that it generally increases in value and helps stabilize the investment portfolio. (Bill, 2006) Over the period of time it is not the price of gold that his risen but it is in actuality the value of the currencies that is going down.

The main reason for this being the fact that money can easily be printed. Over the years the Central Bank has increase the money supply which has lead to the decrease in its value. This is a process which needs to be implemented and it is something the Central Bank is committed to doing. Gold is an investment that cannot be destroyed on the other hand investing in paper money is not that good an alternative as with the increasing money supply the value of money will inevitably decline and thus the value of these currencies will decline over time.

Gold on the other hand has intrinsic value and when currencies like dollar or Pound Sterling depreciate in value over a period of time depending on the strength and stability of the economy. For example in times when there is hyperinflation and when the economy is not doing well, the value of your savings in paper money can be wiped away, in such type of crisis gold makes a good investment. (Douglas, 2008) In times of recession when the economy is close hitting rock bottom, investment in gold is a better alternative as compared to investing in stocks of most companies or in other words investing in the stock market.

Gold is an attractive investment even when a negative interest rate prevails in the economy (inflation is higher than the nominal interest rate). Because of the negative real interest rates the saving in banks become less attractive in other words investing in paper currency becomes less attractive. Investment made in paper currency only gives return in the face value of the currency i. e. if you have $ 100 in paper currency today in a few years time its buying power will decline a great deal.

You will not be able to get something worth $100 today in a year’s time. But instead if you invest that $100 in gold the investment will pay off a great deal as the value of gold will increase in a year’s time. Investment in gold always brings out positive returns, returns that more often than not increase. Even after centuries of the discovery of gold, it still is as valuable as it was back then in comparison the currencies for example the American dollar loses 2% to 5% of its buying power each year, the current worth of paper currency will go down each year.

In times like what we are suffering from today, there is a lot of uncertainty in our modern economic environment, for this reason gold is a safe haven for investment for no matter how much the paper currency appreciates or depreciates the rate of gold changes accordingly. History is full of examples of collapsing currencies. During such times investors who held onto gold were able to protect their wealth with success. Typically in today’s time when there are events that hint uncertainty investment in gold is a good option.

Conclusion

Investing in gold is the most sensible decision any investor can make in today’s world, specially looking at the declining currency rate and recession in the economy. With the current position of the economy the buying power of the paper currency will decline over time and thus investing in paper currency will be bad decision at the hands of the investors as the paper money will lose its value over a period of time as compared to the investments made in gold which will continue to vary according to the value of the paper currency.

Gold will be able to retain its real value even after a long period of time. The currencies will eventually die out and the buying power of any paper currency will be much lesser in times to come. This would mean that any investment made in paper currency today will decline in the future as the buying power of the paper currency will never be the same after a certain period of time, in fact more often than not it will be much lesser after a little period of time.

References

1. Balarie, Emanuel. (2008). Does It Still Pay to Invest in Gold? Retrieved on 18th November’2008 from http://www. investopedia. com/articles/basics/08/invest-in-gold. asp
2. Bonner Bill. (2006). Gold versus paper money. Retrieved on 18th November’2008 from http://www. dailyreckoning. co. uk/gold-investment/gold-versus-paper-money. html
3. Gnazzo, Douglas. (2008). Gold vs. Debt: The Death of Paper Money. Retrieved on 18th November’2008 from http://www. safehaven. com/article-11265. htm
4. Dan Amoss (2008) Every Paper Currency Falls to Its Intrinsic Value: Zero. Retrieved on 18th November’2008 from http://www. contrarianprofits. com/articles/every-paper-currency-falls-to-its-intrinsic-value-zero-2/4373

Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people, goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound economic policies and to coordinate these policies very closely.As trade between the EU Member States reaches 60% of their total trade, EMU is the natural complement of the single market.

This market will work more efficiently and deliver its benefits more fully with the removal of high transaction costs brought about by currency conversions and the uncertainties linked to exchange rate instability. EMU and the economic performance of the Euro area will have their largest external effects on neighboring economies in western Europe and on developing and transition countries with important trade and financial links to Europe, including countries that link their currencies to the Euro.

Among emerging market economies, those likely to be most affected are the transition countries of the central and Eastern Europe and the Baltics.The global environment has been favorable in a number of respects for the transition to EMU and the achievements of its objectives. The strong demand for euro-area exports from industrial countries at more advanced stages of the business cycle and the depreciation of the currencies of euro area countries over the past four years fostered a strengthening of growth in the euro area and helped to offset the effects of the Asian crisis.

There are also challenges for EMU in the global economic environment:

The crisis in Asia and other emerging market economies could produce adverse spillover effects and make the monetary policy more difficult to carry out.

The continuation of the crisis could result in weakening of the external demand, which, in turn, could dampen confidence and domestic demand.

The financial market volatility could increase the uncertainty in assessing the economic indicators.

The economic crisis in emerging markets could influence the commercial banks in the euro- area to make substantial provisions for non-performing loans.

It is, of course, impossible to predict the properties of the behavior of the exchange value of the Euro. With regard to broad trend, it seems likely that the Euro will tend to appreciate against the U.S. dollar and pound sterling over the next few years, but depreciate against the Japanese yen when Japan”s economic recovery begins.

The United Kingdom and the United States have reached relatively advanced stages of their cyclical upswings, with resources more fully utilized than in the euro area, the Euro”s initial value comparing to the pound and the U.S. dollar can reasonably be considered to be below its medium-term equilibrium. As the economic recovery in Europe proceeds and the growth in the U.K. and U.S. economies slows, the Euro will most likely appreciate against those currencies. On the other hand, Japan economy remains in the critical position. The resumption of moderate growth will lead to a recovery of the yen. Thus Euro is expected to depreciate against the yen over the next few years.

According to some widely made predictions:

Euroland’s capital markets, from equities to corporate bonds to municipal finance, will grow exponentially in coming years as the removal of cross-border currency risk drives pan-European markets.

The Euro will stand alongside the dollar as the second-most-important currency in the

world, reflecting its coming role in global trade and finance as well as its common usage by 290 million Euroland citizens.

The new central bank has been given the independence to pursue price stability as a

primary objective. This feature will affect the credibility of the ECB positively and thus the investors would see the Euro as a stable store of value in the next decade.

Once the single currency takes effect, the national central banks of the euro area will

reduce their international reserve holdings. Trade within the euro area will be denominated in a single currency and will no longer need to be backed by international reserves. Estimates of the EMU countries” resulting surplus of international reserves range from $50 billion to $230 billion.

The scenarios that are presented in the European Commission Forward Studies Unit”s report regarding the economic situation in Europe towards the year 2010, reflect the possibilities rather fairly. I personally find the report an accurate study containing precise predictions. Out of the five futures for Europe, I think the Scenario No.3 seems the most logical and possible theory to occur.

The reason I chose this particular scenario is because it focuses on the following issues:

Transformation of the public sector

Efforts to include Eastern Europe

Agreements on unemployment issues

Turning hierarchical pyramids on their heads

Although in some countries public administrations such as central, regional and local government have started to make preparations for the introduction of the Euro, in general the evidence is that such organizations have taken few practical steps to prepare for the changeover. The grounds mainly are that they have plenty of time because they operate largely at the ‘retail end of the marketplace’ and that they will need to await the circulation of the new notes and coins. The view of the Federation des Experts Comptables Europeens (FEE) is that this is a risky and potentially costly strategy and that early preparation is essential to reduce both risks and costs. Public administrations therefore ought to be preparing their own management and operations systems now for the changeover to the Euro according to advice issued by FEE.

In the near future, member states would often present the Commission with their convergence programs, which would also assess long term prospects for the public sector. These programs would indicate the durability of deficit cuts in the countries whose public economies have been urgently trimmed to meet Euro conditions. Economic growth and structural reforms to reduce cost pressures on the budget are permanent methods but, for example, special taxes need to be supplemented by corrective measures to ensure permanent

budget discipline. Indeed, the views of member states about the long term public economy could diverge when their euro-eligibility is assessed and the choice of euro members has to be explained to the public.

The European Union is currently being enlarged to include the transition countries of the Baltics and Eastern Europe. The countries that intend to join the union will need to show progress toward meeting the Maastricht criteria. Potential EU members must overcome a number of challenges. They need to progress with privatization and to continue to reduce government involvement in their economy while disassembling monopolies, removing trade restrains and developing flexible labor markets. Six countries-Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia-have received favorable opinions from the Commission on their applications. These countries have already made good progress in meeting the guidelines of the treaty.

In this particular scenario No.3, the accession negotiations of the Union with Turkey is mentioned. I personally think without the contributions of the Eastern Europe and the Baltics the future objectives of the Euro and the European Union can not be accomplished. Especially the future admission of Turkey to the Union is vital regarding the geographical position of this

country, which not only connects Europe to Asia but also, forms a bridge of culture, a common ground between people from different horizons. However the Union still ignores the importance of Turkey”s role in various agreements and settlements made between Europe and Asia which are vital for the future of EU. But in the next decade as it starts to see the big picture, the efforts of the Union to include the Eastern Europe in the game would increase remarkably.

Strong growth will allow further progress in reducing the euro zone’s high jobless rate. Some of the member”s unemployment rate decreased drastically by keeping the game close to the euro zone standards.

Job growth has been spurred by record low interest rates, a result of cuts from high levels to assure euro zone convergence. Low rates are fueling domestic demand, especially consumer spending and construction. Business investment is also gaining. Still, global weakness is depressing exports, and that’s why job growth is expected to slow a bit in the second half. Even as construction, agriculture, and services, especially tourism, post solid growth, manufacturing jobs fell .

The governments plan to cut prices in regulated utilities, likely to be followed by efforts to reform pricing in retail distribution and certain services. Some member countries have a lot of employees who want to work more hours. So automatically a connection is established between the government and the public. In 2010 the governments together with other businesses, local authorities and community associations would continuously try to move the obstacles in the way and make it easier for the unemployed citizens to find a job in a satisfying environment.

“Turning hierarchical pyramids on the heads”. That phase itself made this scenario No.3 look more real than the others. Europe has a long history and the Europeans have lived through more dramatic events than any other culture of the world. It is now time to give the people of Europe something special. Only but only if ” the hierarchical pyramids” are turned on their heads, will the Europeans thoroughly support the EMU and the Euro. Transformation of the public sector, efforts to include Eastern Europe and the efforts on the critical unemployment issue are all a part of the strategy in the new epoch ” Shared Responsibilities”. It is now time that people take the real issue in their hands and get in charge. The times when everything is expected from the governments are over.

For the professional organizations of Europe the launch of the Euro presents an important organizational and even philosophical challenge. By bringing down barriers to cross-border trade, the Euro makes a pan-European perspective crucial for efficient and effective operations. Many companies are, therefore, focusing on changing their culture, not their organizational structure. To be successful, Europeans will no longer be able to look at themselves as operating with complete autonomy; rather, they will have to see themselves as operating within a federation of businesses that, while independent, share common responsibilities.

International Financial Markets

Switzerland versus France

The establishment of an overseas subsidiary company or even a Greenfield project requires careful analysis of a given countries suitability in terms of factors that contribute to maximum realization of profits. Factors such as the currencies of a country, its trade policies, affiliation to international trade blocs, its population, labor force, and many other factors that directly or indirectly affect the process of trade are carefully scrutinized and a comparison carried out against other countries. On this account this paper will scrutinize two countries one a member of the European Union and the other one a non-member in view of determining the most suitable for the establishment of Greenfield project; Switzerland a non-member of the European Union and France a member are the two chosen countries.

The official currency used in Switzerland is the Francs commonly denoted as CHF, Switzerland is the only European country that uses franc as her official currency. The CHF is by far the fifth most traded currency after the US dollar, the euro, the sterling pound and the Japanese yen. Currently the CHF transacts at 0.8962 against the US dollars. The strength of the currency makes goods produced in Switzerland to be highly valued in the international community; this also makes the importation business less expensive. [Gross Domestic Product – estimates, 2008] On the other hand France uses the euro a currency that is use by eleven other European Union member states, Euro is usually managed by European Central Bank that is stationed in Frankfurt and other European Systems of central banks. This makes France goods to remain competitive in the international markets, especially in European countries. [The French Revolution of 2007]

Away from currency issues, Switzerland has got a very strong capitalist economy, it ranges second after Ireland among European countries. The 2005 median household income in Switzerland was estimated to reach 95,000 CHF which is equivalent to the wealthiest states in US like Vermont and California. Switzerland has got very low taxation and interest rates that makes it to be in controversy with other European nations, it has also a policy of banking secrecy that makes it the most suitable destination for foreign investors. [Gross Domestic Product – estimates, 2008] On the other hand France is the fifth world strongest economies after countries like US, Japan, China and Germany.  However, its bank interest rates and taxation rates relatively high and in conformity to the set EU rules. [INSEE, 2008]

Another core issue is that of the labor force, Switzerland envoys a constant flow of highly trained and professional man power, this made possible by a well structured and flexible education system that allows for the training of students into three categories i.e. the  fast, middle and the slow learners. [Swiss labor Force Survey 2008] On the other hand France has got a large population that is unemployed but poorly trained especially following an unreliable university curriculum that does not fully prepare students for the job market, again, the labor laws in France are rigid with a short working hour day. [The French Revolution of 2007]

Both countries boast of a well structured network of transport that extends to their neighboring countries making it possible to move goods and people with much ease. Water transport is well established in both countries as they all boast of contacts with large water bodies; this makes it possible for the importation and exportation of heavy goods. The two countries also have got well established agricultural sectors that provide enough food for the working population and the surplus sold to other countries. The Switzerland government subsidizes agricultural activities in view of conserving the environment whereby only those farmers who show commitment of employing environmentally friendly farming activities are given the subsidies.

My careful scrutiny of the viability of the two countries in regards to the setting of Greenfield facility has led to my recommending Switzerland over France, this recommendation is based on the fact that a Greenfield facility should be established in an area that is uneconomically untapped and that is environmentally pure. My rationale is that Switzerland fulfills this demand as it has got a currency that is relatively strong and that is not used by many other neighboring nations. Again the government policies on trade are very accommodative especially to foreign investors a phenomenon that has led to an unordinary presence of foreign investment corporations in the country. The country has also a flexible and a well trained labor force that is comprised of both local and foreign citizens. The country also has a sufficient and environmentally friendly energy sector that is also cheap and therefore eliminating much production costs. Switzerland agricultural sector is thriving well especially due to subsidizing by the government which makes it possible for the cheap supply of food to workers and the surplus is sold to overseas countries.

References:

1. Swiss labor Force Survey 2008, Swiss Bureau of federal Statistics (November 2008) , accessed on January 19, 2009
2. Gross Domestic Product – estimates, states Secretariat for Economic Affairs SECO (2008-07-03), accessed on January 19, 2009
3. French national Institute for statistics and Economic Studies (INSEE), available at;
   http://www.insee.fr, accessed on January 19, 2009
4. The French Revolution of 2007 – Nicholas Vardy, march 9, 2007 – investor perspective on changes affecting French markets and economy, accessed on January 19, 2009