Who buys a weak currency?
Suppose I want to convert Zimbabwean dollars into US dollars. Who will buy the Zimbabwean dollars from me? That is, why would they ever agree to change their valuable US dollars into the less valuable Zimbabwean dollars?
The only thing I can think of that would entice a buyer is charging a fee. (The fee would also be paid in Zimbabwean dollars because that is all I have). But even then, what will they now do with the Zimbabwean dollars? Aren't they now left with a pile of less liquid currency than they started out with. It seems to me that the buyer loses...
Is the government of Zimbabwe responsible for meeting the demand of its citizens (indirectly via banks) to convert Zimbabwean dollars into US dollars? Or is the retail sector the only one that performs this service?
A similar question arises with altcoins. When converting an altcoin to Bitcoin, who buys the altcoin using Bitcoins? That is, what incentive does the buyer of an altcoin have in order to give up the more liquid Bitcoin, for an unknown altcoin?
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Anyone who wants to buy something from Zimbabwe or pay taxes in Zimbabwe will need to buy Zimbabwean dollars. A company in Zimbabwe that pays its workers in Zimbabwean dollars but sells products in US dollars will need to buy them too.
Because there is an existing economy in Zimbabwean dollars, one has to buy the currency to be part of it. If the economy is growing, it may make more sense from an investment standpoint as well. If it is shrinking then maybe not.
With altcoins it is similar, except there are fewer reasons to buy a specific altcoin. However because digital currency is growing overall, people may buy altcoins because they are inexpensive compared to other virtual currency.
Perhaps this may be helpful to think of in terms other than currency.
It seems obvious that gold bullion is more valuable than rice. So, if you have some rice to sell, and get gold in return, it would seem that you've won out. You gave something less valuable and got something more so; the other person gave something valuable and got something less so.
The issue is, it's meaningless to say that gold is worth more than rice. Per kilogram, gold is worth more than rice. That's true, and the above logic holds, and sure enough you would struggle to find anyone willing to give you a kilogram of gold in exchange for a kilogram of your rice.
What actually happens is that there is some amount of rice which is worth the same as some other amount of gold. Let's say that a tonne of rice is worth a bar of gold. A lot of less valuable stuff can be worth the same as a little bit of more valuable stuff.
Once you know that price, you can start trading. You find someone who is slightly more interested in rice than gold (because he's hungry) and therefore considers that he's won out at the market price. Or perhaps he's more interested in rice than gold because he can store it and sell for a profit during a famine, while a "famine" of gold isn't something he can capitalise on. Meanwhile you are more interested in gold than rice (because rice is hard to store and loses its value) So if you trade a tonne of rice for a bar of gold, as far as you're concerned you've won out. Everyone wins.
In currencies, same sort of thing. Perhaps someone buys Zimbabwean dollars because they're going to Zimbabwe and need some pocket money. They're like the guy who is hungry and so wants rice more than gold: but they'd still expect squillions of Zim dollars for their US dollar because that's the price. Or perhaps they are buying them because they anticipate the Zimbabwean econonomy to improve under new leadership, and they can convert back at a later date at a profit.
Here are some people that will buy the currency, abide may not within the official exchange rate.
Informal Value transfer which the buyer and seller of the currency are secured by the traders. I.e. they only make the trade when there is a confirmed peer, which money traders can match a rate that gives them immediate profits. Volatile of Z$ make hoarding and hedging of Z$ non-practical.
Collectors/ Buyers interested in trillions Zimbabwean denomination . But it is only limited in demands.
US dollars facilitate transacting an almost incalculable number of goods and services in the US and other places.
Zimbabwe dollars facilitate transacting primarily within the local Zimbabwe economy.
Bitcoin can transact as an alternative to US dollars and some other local currencies sometimes.
Altcoins have no value as a currency.
A person can speculate in all sorts of things. Equity in an operation, debt instruments, commodities, currencies. The value of bitcoin has absutely nothing to do with its utility and the alt coin markets exist completely on speculation. Just because people call these things currencies doesn't make it so.
Price is everything. There is a price high enough that the best asset will be desired by no one, and a price low enough that the worst asset will be desired by everyone. If the price is constrained (e.g., by an official exchange rate), then there may indeed be no natural buyers. Governments that maintain unrealistic exchange rates for their currencies do tend to be buyers, offering relatively high amounts of US dollars but with restrictions and in limited quantities (e.g., for their own citizens traveling to other countries).
In contrast, market-based exchange rates (legal or illegal) are, by definition, those that voluntary buyers and sellers can agree on. The market price takes into account the perceived risk (illiquidity, volatility, etc.) but does not have a well-defined separation into "base" and "fee". If Zimbabwean dollars have any use at all, there will be some number of them for which I am happy to pay one US dollar.
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