I used to travel to Lebanon a lot for work, and I used to exchange USD for a much higher rate than the official bank rate. How did those selling the USD at this much better make profits?
In: Economics
Governments restrict how much foreign currency can be sold and purchased with their own currency as a means of controlling what they think or need the value of their own currency to be.
Black, grey, and blue markets all base their currency exchange rates, not based on what is best for the country’s economy (or what is thought is best by government leaders), but based on raw supply and demand.
This leads to disparities in the official and unofficial exchange rates.
If an economy is doing poorly, the government has an interest in artificially keeping the exchange rate high so that more of their own currency gets used and confidence remains high. But real supply and demand on unofficial markets will not reflect this.
If an economy is doing well, demand for foreign currency is low and criminal organizations seeking to launder money must work harder to do so. One of the ways to do this is to sell dirty currency at better exchange rates than the regulated market.
Latest Answers