PYG

Categories: International, Forex

“PYG”...isn’t that an old Michael Jackson song...like, long before he was a celebrated pedophile? Wait, no, that was “P.Y.T.,” and yes, the irony sickens everyone who listened to it in more naive times.

“PYG” is something totally and completely different: it’s the currency code for the Paraguayan Guarani, which is, at present, the least valuable currency in North and South America. In fact, as of June 2019, the PYG-USD exchange rate was 1 to .00016. Ouch, right? But that’s what crazy high inflation, corrupt policymakers and banks, easily forged banknotes, and an insanely unstable political and economic environment can do. They can toss a nation’s currency right into the sewer.

But Paraguay isn’t ready to totally give up on their currency just yet. They’ve tried a few things—pegging the PYG to the USD, unpegging the PYG from the USD, minting different guarani denominations here and demonetizing others there, and even proposing an new currency altogether (the “nueva guarani,” or “new guarani”)...but so far, none of them have stuck. The country has only been a democracy since 1989, which means it’s still a democra-baby in political years. It can take a long time to undo all of the corruption, poverty, and other damage done by 35 straight years of dictatorial rule, so even though the PYG might look a little…what’s the word…troubled right now, there’s a chance it could maybe recover at some point in the future. Here’s hoping, anyway.

Related or Semi-related Video

Finance: How does foreign exchange work?11 Views

00:00

Finance allah shmoop how does foreign exchange work All right

00:07

Well there's risk when you buy and sell goods and

00:09

services outside of the u s that isn't there when

00:12

you buy and sell goods inside the u s your

00:15

smoothies and absence a major chain of a thousand smoothie

00:19

shops you buy a million bananas a year the customers

00:23

believe that they have a peel you buy all of

00:25

them plantains actually these little guys from uganda and just

00:29

agreed to pay in ugandan shillings One u s dollar

00:33

buys about four thousand ugandan shillings and that's a lot

00:36

of bananas You take the risk on the foreign exchange

00:38

currency because well you don't like hedging your bets you're

00:41

just going to take the risk if the currency moves

00:43

up or down it's on you horse at another way

00:45

Yeah if you were nervous about relative currency valuation fluctuations

00:50

well you could be a kind of currency life insurance

00:54

in paying a ten or twenty percent premium above where

00:56

the relative currencies air trading today that for thousands of

01:00

one thing and you could sleep pretty well at night

01:02

knowing that your rates were fixed like you're basically paying

01:05

Someone else to take the risk of uganda suddenly getting

01:08

its financial act together in its currency skyrocketing so that

01:11

a u s dollars only buys you three thousand or

01:14

two thousand ugandan shillings or things go the other way

01:17

But you don't like buying insurance You know how nice

01:20

the jets are that insurance executives fly and you know

01:22

about warren buffett He didn't get there for free so

01:25

you didn't had you didn't do anything to worry about

01:28

currency but then all of a sudden china decides to

01:31

adopt uganda as its new financial partner agreeing toe underwrite

01:36

all of uganda's debts basically in return for well uganda

01:40

Yeah they liked owning uganda way better weather and they

01:43

also got the highly prized you r l uganda dot

01:46

com So then almost literally overnight the ugandan shilling becomes

01:50

highly more valued under the deeply respected and feared auspices

01:54

of the chinese banking system So instead of a dollar

01:57

buying you for thousand schillings while now a u s

02:00

dollar only buys you one thousand so your cost of

02:03

bananas just went from four hundred bucks a ton to

02:06

sixteen hundred bucks and the marginal cost of those banana

02:10

Plantain Things in your shakes went from thirty cents over

02:14

a dollar twenty and with profit margin per shake it

02:16

only two fifty to start with twelve new profit margins

02:19

suddenly dropped almost in half Eventually you'll have to find

02:22

another banana supplier or raise prices or figure out a

02:26

substitute But well for now it looks like this Foreign 00:02:29.253 --> [endTime] exchange deals Profits will get eating

Find other enlightening terms in Shmoop Finance Genius Bar(f)