Money has three functions:
A foreign currency like the US Dollar or the Euro is, however, a medium of exchange in SA. Most businesses and individuals would accept the USD or the Euro as a means of payment; that is, as a medium of exchange because they can easily sell the foreign currency amounts they would receive in transactions at their local banks for
A hard currency is also a store of value in SA. The USD and the Euro are hard currencies with daily changing market values. They are generally accepted world–wide as a relatively stable store of value. People know there are normal daily small changes in their foreign exchange values.
The USD and the Euro are, however, not national units of account in SA. You cannot normally do your SA accounts in US Dollars or Euros for tax purposes during low inflation and deflation. You have to do your accounting in
Foreign currencies are variable real value non–monetary items in a non–dollarized economy. They have variable real values which are determined in the foreign exchange markets daily.
The US Dollar is only a functional currency unit outside the
The man and woman in the street, however, regard anything that is a medium of exchange as “money” in very limited applications. Cigarettes are often used as a medium of exchange in prisons. Shells have been used way back in history as a medium of exchange.
The man and woman in the street in SA certainly regard the USD and the Euro as money in SA. SA entities, however, classify foreign exchange as a variable real value non–monetary item stated at its current market value and not the same as the SA Rand, that is, not as a monetary item when they choose to implement financial capital maintenance in units of constant purchasing power in terms of IFRS as authorized in the original Framework (1989), Par 104 (a) during low inflation and deflation, i.e. when they implement Constant Item Purchasing Power Accounting.
Dollarization can be in currencies other than the US Dollar too.
Copyright (c) 2005-2011 Nicolaas J Smith. All rights reserved. No reproduction without permission.