Tuesday, 6 March 2018

Why Cash Is Always the King

As the snow stopped falling over Edinburgh in early March 2018 I decided to go to my local supermarket to buy some bread. It was all I needed, but to justify the journey I added breakfast in the supermarket's cafe to my list.

There was only one man behind the counter and he was taking the orders and preparing the food since he was the only member of the cafe's staff that had managed to get into work since the buses were still not running. The hero of the hour took my order and then said quite casually that the cafe was only taking cash since the machine that processed card payments had stopped working. Perhaps needless to say, no technician could get in to fix it because of the weather.

I replied that this was fine and I intended to pay in cash, anyway, and I went on to say that I disliked plastic at the best of times.

Both the counterman and the security guard who was stood at the counter eating a sandwich both then told me that they never carry cash because plastic is so much easier these days.

As I took my seat, food and coffee in hand, I reflected that had they been punters like me and not staff then they would not have found the plastic so convenient that day. 

So cash is king for anyone who wants to make sensible preparations for life's eventualities. Not only that, but the type of cash is also very important, which is why many people keep a stock of both their local currency and American dollars to hand in a safe location.

In the days when I lived in Mexico, keeping dollars in the house was something I just did as a matter of course, since nobody in that country ever has any faith whatsoever in the Mexican peso.

A friend of mine is a regular traveller to the Far-East. The last trip he made in 2017 involved him taking a couple of hundred pounds and his debit card to Manila, the capital of the Philippines, where he had to change aircraft to go to his final destination in the far south of that country.

You can probably guess what happened at Manila Airport: none of the ATMs was working and in the finest traditions of the third world, nobody knew anything about when they would be back in operation. 

However, he had £200 in sterling, which should have been more than enough. Unfortunately, he had taken that money out of an ATM in Edinburgh and almost all that amount was in Scottish notes. Needless to say, the staff at all the money change shops refused to swap them for pesos. 

As luck would have it he had one Bank of England £20 note in his wallet and that, exchanged for pesos had to last him for the next 24 hours until he reached his final destination. 

The point here is that the American dollar is the world's reserve currency. It is the stash that people keep under their beds and the dollar is freely exchangeable just about anywhere. Had my friend kept a wad of dollars for his trips abroad he would not have had the problems that he did. On the other hand, we his friends would not have had such amusing anecdotes about how he survived 24 hours in Manila with just twenty quid in his pocket.  So, keeping a supply of dollars to hand strikes me as just simple common sense for the regular traveller or for anyone who is worried about the future of the local currency. In that case the dollar provides its holders with plenty of day to day reassurance.

Most sensible people will keep some of their savings in an account that allows for immediate access to the funds.  I am one who cannot afford to keep all that much money saved up, but I do know which banks in my locality give out English notes and in an emergency, I would go to one of them. Just as I trust the Federal Reserve more than the Bank of England, so I trust the Old Lady of Threadneedle Street more than I do the Scottish issuing banks.

English notes would be more useful in case of a major event in Britain that then puts the ATMs out of action. Dollars would be no use in this country under those circumstances, but neither would high denomination banknotes, either.  I think a mixture of fives, tens and twenties make sense, with a couple of bags of one pound and 50p coins thrown in for good measure.

At this point, you may be expecting me to start banging on about the utility of keeping gold and silver as part of your emergency stash, but I am not going to do that for the simple reason that I do not believe that there is any utility in keeping such things to hand.

In Mexico a lot of people keep silver coins, especially the one troy ounce silver round known as the Libertad, but that has more to do with the fact that Mexico is the world's leading producer of silver, coupled with folk memories of the days when the Mexican silver peso was worth more than the American silver dollar than it does with anything else. Sadly, the days when American traders had to travel to Mexico to exchange their silver dollars for silver pesos as those were the prefered coins for the China trade are long gone. Today's Chinese are quite happy to take dollars and so should you.

One lesson that Mexico can teach Britain is to be prepared for the next currency collapse. They have had many experiences of that with their own currency, and have the mental ability to switch into whatever is available at a moment's notice.

For instance, during the peso crisis of 1994 when the exchange houses refused to change money until 11.00am because Banco de Mexico could not set an exchange rate that would last the rest of the day until that time, people started using all sorts of weird and wonderful things to transact business with. Silver coins and dollars were the obvious ones, closely followed by bottles of tequila and brandy, with cartons and pack of cigarettes bringing up the rear. I remember getting my car fixed at that time by a man who wanted two rather decent bottles of tequila for his labours. I thought that was too much so he gave me a carton of Marlboro cigarettes by way of change.

Using alcohol and cigarettes as emergency currencies have a long tradition behind it. There are even preferred cigarette brands that are used when the money is no good. For instance in Romania, just about anything that a person wanted could be had for packs of Kent cigarettes during the Cold war era. Closer to home, when my mother died in 1989 I found several half and quarter bottles of whisky in a drawer, along with plenty of tea, sugar and powdered milk.

Given that both my parents were teetotal, I asked my father what the deal was with the booze and he explained that my mother had only survived the Great War by good luck, but still ended up with rickets which left her with bow legs for the rest of her life. As the Second World War approached she and her mother had stocked up on whisky to use as trade goods for hard to obtain food to make sure that they didn't go hungry again.

Luckily, the rationing in the Second World War was more efficiently run than it had been in the First War, so she didn't need to barter very much, which was why a few bottles were still in that drawer. The tea and sugar were post-war and dated back to the time when people feared a Third World War. I suppose she planned to have a final cuppa as she awaited the atomic bombs.

So, by all means, keep some trade goods on hand if you feel that such things are a good idea. The non-smokers could even bring back a few cartons of cigarettes from their next holiday abroad, assuming they go to a land where tobacco is cheap and then keep them as an emergency currency.

However, I honestly believe that for what we may call a normal crisis, having ready access to pounds sterling makes far more sense. For people who fear long-term sterling troubles, the U.S. dollar provides a perfect, easily transportable, safe-haven.

No comments:

Post a Comment

Views Themes -->