Nov 5, 2022
Economy: Currency-Trade Model for the Debt Crisis in Latin America, Africa and Southeast Asia
There is a recent article in The Conversation, The whole world is facing a debt crisis — but richer countries can afford to stop it, where it stated that, “One of the main reasons for this worrying scenario is that countries across the world are essentially compelled to borrow money in US dollars or Euros, and keep foreign currency reserves for future debt payments.”
It continued, “Unfortunately for many emerging economies, the reserves they hold are simply not enough to cover all of these demands.”
Two of the three suggestions in the article were, “First off, the US and the EU should slow down their interest rate hikes. These US and EU rate hikes slow economic growth around the world, as the United Nations warned, and they are draining countries’ foreign currency reserves.”
“Second, the International Monetary Fund (IMF) should drop or at least soften the austerity requirements linked to its emergency lending.”
The article mentioned some countries, including Argentina, Ghana, Kenya, Sri Lanka and Zambia. These countries are in different subcontinents: Latin America, Sub-Saharan Africa and South Asia.
Sri Lanka has bilateral relationships with countries in Southeast Asia, via ASEAN, so Sri Lanka can work with solutions that come from ASEAN. Sri Lanka was recently in the news, for protests. Argentina has been in the news in recent years for default problems. Ecuador had protests for inflation. Several countries in sub-Saharan Africa are facing a debt crisis, inflation and hit by the global food crisis.
There is a currency-trade option to fix the debt crisis, away from external dependencies to something within the sub-continent.
The model is to make currency available along with trade.
How?
In the same sub-continent, country A provides its currency to country B, so that country B uses it to trade within.
What this means is that say Kenya’s KSh is loaned to Burkina Faso, so that Burkina Faso uses it to pay for imports from Kenya’s manufacturers or other countries that do business with Kenya.
Kenya’s KSh to Burkina Faso or another pair of countries involved will provide the second country more, strengthening their economy, as well as bringing in new demand and trade for Kenyan businesses.
In Latin America, Argentina can provide its Peso to Bolivia, for Bolivia to use it to trade with Argentina or those who trade with Argentina. This would create demand and multiplier effect in the Argentinian economy. Argentina can get some Boliviano to pay for some aspects of the trade to Bolivian businesses.
In Asia, Thailand can provide the THB to Sri Lanka for trade and imports.
This will be a model for available liquidity, rather than seek the highly competitive top foreign exchange.
This model can be called export guidance, so if country A wants to increase export to Country B, it can loan its currency to the government, banks or businesses — directly or indirectly — of Country B.
This can be a model to lower inflation, raise currency value, and also keep interest rate low for Country A, or in some ways for Country B.
The currency can also be made available to continental finance giants, to provide currency X of Country A, to countries willing to accept, for their credit.
The loans can be guaranteed using some of their natural resources or access to the currency reserves of Country B — elsewhere.
The currency exchange will not stand alone, but must go with exports, imports, or any form of trade as it is the purpose, to in part reduce inflation and shortage problems.
It can also increase foreign direct investment between countries, for factories, refineries, manufacturing and some kinds of imports.
Commercial banks from both countries can open in both places, to facilitate businesses.
It can also deepen ties, improve employment and become a way to look regionally for growth rather than at larger economies — working on their own stability post-COVID and amid the war.
A coastal country can work out daily supply of large exports of fish, via air, for a landlocked country that accepts the loan.
This loan can be spent directly or indirectly since most countries have mutual multiple trading partners.
A country with great foreign direct investment and more trading partners can also import stuff in excess, to export to regional partners, or sell to them under this model.
This can also be a way to have expats work in both countries, paying them in their local currencies.
It is possible the loans can be offered at only certain times of the year, when certain products are available, or for certain purposes.
It is also possible to energize some sectors or industries with this loan.
The loan maybe applicable only to countries that aren’t neighbors, to avoid abuse or direct migration.
The major country can facilitate microfinance and SMEs, where they can receive products from this model, sell and pay back. Such that currency of Country A provides liquidity for microfinance and SMEs of country B.
The main goal is to use this to boost infrastructure exports, so when other countries in the sub-continent want to build, they can import from a major country.
The currency model will give some countries an advantage against debt and lack of capital availability.
Three-Country Model
There are some large economies within Latin America, Southeast Asia and Sub-Saharan Africa and they could do this for 2 other countries.
So, there is Country II — which can be middle economy in a sub-continent.
Then there is country III — which can be a small economy in the same sub-continent.
So, the major economy, say M would get some currency of Country II, while giving them their own currency.
This currency — country II can loan it to their businesses, or the government can use it to buy stuff from M manufacturers.
This will extend the use of their currency from another angle, in a way to incentivize M’s exports.
Then, the Currency of Country II that M has, can be loaned to Country III — the small economy.
This loan to Country III can then be used to trade with Country II, or with M.
So that manufacturing projects, jobs, expansion and more, can be done with the Currency of Country II, available to Country III.
Already, lots of these countries are short on liquidity, they also do not have a way to manufacture, or do more as they have less.
So, providing them with the chance to have another currency, for trade will be a huge bargain.
Then also, for II, with M’s currency, they can buy M products, pay for it, and experience it, in what can then sustain itself — after their experience with Made in M.
While the export market is super competitive, using the currency factor in this strict model would grow the economies, boost manufacturing extensively and edge against inflation.
This new option would be interesting for Latin America, Southeast Asia and Sub-Saharan Africa amid hopes for economic stability.
For example, there is a need for farm equipment in some countries, for some they want electricity facility, some need construction materials, and more.
Currency for trade between countries this Q4 could make grim predictions about employment and recession for ’23 avoidable.
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