Hi as the title suggests. Can someone explain how would private money changer make money if the currency they are exchanging is experiencing a hyperinflation? Why would they do that business?
In: 5
When an underground/private money changer exchanges USD with a currency that is experiencing runaway inflation, they typically use the black market exchange rate, which is higher than the official exchange rate set by the government. This is because the official exchange rate often does not accurately reflect the true value of the currency in the market.
The underground/private money changer will buy the local currency at a lower rate (typically below the official exchange rate) and then sell it at a higher rate (typically above the official exchange rate) to individuals or businesses who need the local currency for their transactions. The difference between the buying and selling rates represents the profit margin for the money changer.
In situations of runaway inflation, the demand for hard currency such as USD is typically high as people try to protect their wealth from being eroded by the inflation. This creates a market for underground/private money changers to profit from the difference in exchange rates.
It’s worth noting that engaging in underground/private money changing is often illegal and carries significant risks such as arrest, imprisonment, or being robbed. Additionally, those who engage in this activity may be contributing to the instability of the local currency and the wider economy.
Latest Answers