Sunday, May 22, 2016

The Hassle of Money Changing in the Middle East as a Reflection of the Regional Fractures

The author is quite used to having the ease of currency exchange as an expected convenience. In particular, he is quite used to the situation in Asia, where currency exchanges in all countries nearly always operate with no less than 15 currencies, taking in the standard set of hard currencies (USD, Euro, British pounds, Swiss francs) while making available practically all currencies of East and Southeast Asia, barring only those with small/closed economies (Cambodia, Laos, East Timor, to name a few).

With everything on the line, including the major ones like Hong Kong Dollar, Singapore Dollar, Korean Won, Japanese Yen, Chinese Yuan, New Taiwan Dollar, as well as relatively niche demands for Malaysian Ringgit, Indonesian Rupiah, Thai Baht, Philippine Pesos, Asian currency exchanges were serious players in linking business interests of individual countries together at the individual level.  With so many agencies competing everywhere with the best rates, the traveler never had to think hard before traveling to another country in the region about preparing foreign cash in advance.

Before going to the Middle East, the author held the exact same attitude about currency exchange there.  After all, with the region linked by traditional Arab economic ties, demand for each country’s currency should be relatively strong in the neighboring ones, despite the current bout of political issues in some countries that affect economic performance.  Even the region’s political outcast Israel has enough of practical economic reasons to keep transactions going.  Such reality should allow for similar levels of foreign exchange convenience to anything found in Asia.

The reality was quite different, to say the least.  The region seems to completely lack “strong” regional currencies, as defined by something that is happily accepted for exchange in other countries.  Lebanese Lira seems to be universally spurned in all neighboring countries, while economic volatility of Egypt makes the Egyptian pound unwelcome in many places.  Contrary to the author’s assumption, economic reality does not outweigh political hostility, rendering Israeli Shekels useless in all Arab countries except Jordan.  And stable and valuable Jordan Dinar is even not in stock with the Egyptians and Lebanese.

Hence, the medium of exchange becomes one of the global hard currencies, even between the neighboring countries.  Each time the author traveled across borders, he had to check in currency exchange of the country of departure to see if the currency of the country of arrival is available for exchange.  If not, the answer would be to swap everything into USD and then swapping the USD into the local currency upon arrival.  The financial loss from changing money twice rather than once at the border adds up over time.

The preferred solution of many economic actors in the region to the expense of foreign exchange is to simply not use the local currencies at all.  With the exception of Jordan, where the local Dinar is higher in value than USD, almost all hotels in the region quote prices only in USD.  In Lebanon, the practice of using USD on a daily basis has become such a norm that even street-side eateries and taxi drivers keep small change in USD for giving out change.  The author has even had encounters where local currency was given as payment but the change came back in USD because the local currency was not available.

The fact that local currencies are relegated to reduced roles in these countries is a reflection of the general populace’s lack of confidence in the economic stability for their respective countries.  With USD use widespread even in relatively stable Lebanon, the phenomenon illustrates widespread belief that current stability does not automatically translate into continued stability in the foreseeable future.  As such, it is best to stick to hard currencies for daily use, just in case the local currency rapidly loses value in possible economic crises.

Yet, at the same time, the fact that hard currencies like USD can be used in daily basis but the common man shows the Middle East’s commercial integration to the rest of the world.  Similar efforts for “dollarization’ in places like Zimbabwe does not work because influx of USD into the country is tiny, leaving old crumbled notes and lack of small change common phenomenon in USD-based transactions.  The fact that such is not a major problem in the Middle East shows that in whatever ways, the local populace has access to crisp, small-denomination USD notes.  That is an impressive feat by itself.

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