Most amazing Forex case is Odessa at Dusk

In 1994, I was in Odessa, Ukraine, basically touring under the guise of studying world history for my BA. Odessa was in a unique state of flux caused by severe economic crisis. The Soviet Union had collapsed just a few years before, allowing the smaller states around Russia to spin off into independent countries. Odessa was now a part of the independent nation of Ukraine.  As in many newly formed nations, the economic situation was volatile. Between 1992 and 1996, the karbovanet, the Ukrainian currency, was ravaged by hyperinflation and fluctuation. In 1992, one dollar could buy 208 karbovanet. In 1995, that same dollar was worth 147,463 karbovanet.

The wild fluctuations created a few interesting situations for me and my fellow travelers. First was the sheer size of the number of bills created by a simple exchange of $20. It was like winning the jackpot at a casino. I walked out of there with all my pockets bulging. You’d get a block of currency 6 inches square.  Second, and more important, was the constantly changing exchange rate. Between breakfast and dinner, the value of the money in my pocket could easily drop 20%. Imagine having a $10 bill in the morning that was worth $8 when you spent it in the evening. In addition, the largest swings occurred when Odessa was sleeping and traders in New York and Asia caused the currency’s value to move around. Ukrainians would wake up and find that the value of the karbovanet was half of what it was when they went to sleep.

To avoid these pitfalls, I exchanged only the amount of money I could spend in a single day. The karbovanet was weakening anyway, so there was a greater chance of the U.S. dollars in my pocket gaining strength over time. This strategy was helped by the fact that there was nothing really to buy in Odessa except used Russian military gear and vodka.

But for other people, the solution was not so simple. I had the benefit of having my net worth in U.S. dollars. But what if I were a Ukrainian, and my worth was in karbovanets? In this case, my economic fate was in the hands of traders halfway around the world.

Late one afternoon on a weekday, I went to a small newsstand

to pick up a pack of cigarettes. The owner almost knocked me over

in his haste to close up shop. I said all I wanted was a pack of cigs,making a motion that I would be quick. He eyed me suspiciously

for a second and grunted OK. He let me in the store, and I made the purchase.

I carefully asked him what the rush was, and he responded that he needed to go exchange his cash for the day. He said if he didn’t hurry, the exchange would close, and holding Ukrainian money overnight was too risky. We finished our transaction and he moved swiftly out the front, locked the door, and was gone down one of Odessa’s old streets.