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
You do need US dollars to buy something from an American website. Your bank is just doing the change of currency behind the scenes so you’re not bothered. That’s one of the reasons you have a bank, they provide financial services to make your life a little bit easier. For a fee.
The American company doesn’t give a shit about your local currency, they can’t use it to pay their employees, their taxes, their American providers, etc…
Large online retailers (like Amazon) may have a subsidiary company in your country accepting local currency and they handle the problems of having hundreds of accounts in several dozens of currencies themselves.
Foreign currency reserves are banknotes, bonds, deposits, treasury bills denominated in another currency held by the local central bank to maintain liquidity in case of currency devaluation (ie your local currency isn’t worth shit anymore but the central bank has a reserve in another currency) and to help various local economic actors with large capital movements (bank A needs a ton of currency B to meet the legal obligation of a contract they signed for whatever reason, central bank can provide currency B in exchange of local currency to smooth things for everyone).
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