I was reading about Bolivia running out of US Dollars and the government is shitting their pants.
Why is this a problem?
I don’t have any US dollars and I’m fine. If I buy something from an American website, I don’t need US dollars. I only have Euros in my bank account. I will use my Euro bank card to buy something from the American website.
Same if I buy something from a Japanese website. I don’t need Japanese Yen. I just use my bank card.
I can survive my entire life without worrying about having “foreign reserves”.
So why do countries like Bolivia need foreign reserves to buy some oil or whatever?
In: Economics
If you buy something from American website, you either convert your local currency to dollar, or rely on someone else to do it for you.
Under normal circumstances, this happens smoothly by individuals and private institutions. But in times of crisis, the conversion rate might drop really swiftly, and your purchases will be much more expensive.
Foreign reserve can ease on that. The country will sell its reserves in times of need, to make the local currency less weak, and moderate the price increases.
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