WORLD.- Some people think that what happens in another country's economy doesn't affect their country, especially if its a thousand miles away, or in a different continent for that matter.
Even in Tijuana, which is a border city and where pesos and dollars are common currency, it is not unlikely to hear that if dollars go up 'it isn't a big deal', given that many citizens don't have a visa or don't cross the border that often. When we talk about economy it is important to understand that everything is relative. The wealth and poverty of a country will depend on the wealth or poverty of other countries, and this is why it's not hard to image why today Greece is under everyone's radar, trying to predict the impact of their current situation as well as their rescue measures regarding other countries economy.
For starters, dollars have gone up and the Mexican Stock Exchange down..
Exchange rates are established in relation to another country's currency, depending on their demand. This way, if a country has a commercial relationship with another, the country who is 'buying' needs to pay with the currency of the country that is 'selling', during this conversion the following procedure take place:
Capital Flight: The country who is buying reduces its national currency reserves in order to acquire a foreign currency, this way they are without any working capital within their country. Bills (regardless their denomination) have less value given that they don't have any true support. Printing more bills only devaluates currency.
If one currency is devaluated, another one is strengthen. Naturally, this occurs when a currency has a higher demand, its is here when problems start to unravel:
Given Greece's uncertain future, investors around the globe are betting on the currency they find to be the strongest.
The same thing happens when in border cities they say that dollars have gone up. In a speculative outburst we could end up buying more dollars just to end up not buying them afterwards at a higher price. Paradoxically, this makes dollar rates raise up even more.
If a currency is benefiting from speculation, or fear of risky assets, undoubtedly, it will have an impact on the rest of the currencies with a lower demand.
Anticipating this, Greece announced yesterday that they will be closing all of their banks for a week. Furthermore, they will limit cash withdrawal to a maximum of 60 euros per day per bank account, as a way to control capital and prevent it form being converted into other currencies. Nevertheless, this Greek crisis has made dollars go up to $15.97 pesos, which means is 12 cents higher in comparison to the price it had on Friday.
Fear of Non-Payment
Greece will have to pay 500,000 euros to the International Monetary Fund by Tuesday, otherwise, they have to officially declared themselves as a 'country under a non-payment situation', loosing access to the capital of the quoted institution. Many believe that Greece won't be able to paid which is why they have opted to turn their money into one more stable than euros.
Greece owes a total of 5,400,000 euros to the IMF.