Don't put all your eggs in one basket

When other countries are making sure that they don't put their eggs in one basket and are therefore diversifying into other baskets Zimbabwe is moving most of its eggs into that basket that other countries are moving away from.

Ever since the global financial crisis which has resulted in the fall of the US dollar against other currencies, most countries have started to divest themselves of their US dollars, but they are doing it slowly to avoid a panic that might wipe out the value altogether. That is exactly what China, holder of billions of dollars of U.S. debt is doing, slowly diversifying into other currencies and it is not the only country doing that. The plummeting value of the U.S. dollar, long considered the bedrock of global finance has resulted in most countries loosing confidence in the U.S. economy and the US dollar and having doubts about the worthiness of the US dollar as the international trading (or reserve) currency. This fall of the once mighty US dollar from grace is primarily because of America's dependence on debt. The subprime mortgage crisis was the trigger, itself a reflection that too many Americans were over their heads in debt. American banks had made it possible, through credit cards, personal loans and mortgage loans for Americans to live way beyond their means, buying things they want regardless of whether they can really afford the items or not. Many of them failed to pay back the loans and started filing for bankruptcy to get out from under credit card debt. To counter that move
banks then launched a major campaign to have the U.S. Congress change the law so that it will be harder for Americans to avoid their accumulated debts. The law was changed and resulted in most Americans struggling to pay back their mortgage loans and credit card bills ending up in foreclosure. Americans have been overspending for decades, both at the personal and governmental levels. At the governmental level the U.S. lives beyond its means, by buying and importing more goods from abroad than it sells, thereby creating a trade deficit, and it also spends more than it takes in, leaving a budget deficit. The US government is then forced to borrow billions of dollars every day, much of it from China and the central banks of other wealthy nations who are more than willing to lend to America mainly because the US dollar is the world's trading currency. "There are limits," warns economist White. "If the dollar drips lower and at some point the Chinese and the Europeans say they don't want to hold dollars, and they all rush to cash them in, then it could be a very nasty situation." That nasty situation, if it happened, could cause a global run on the dollar, with nations such as China trying to cash out of trillions of dollars held by its central bank. In turn, this might cause a rupture in the worldwide
financial network and lead to major restructuring as central banks tilted toward the euro or another currency.

The question that most nations are now asking themselves is now that the US dollar has become weak and unstable how long will it continue to be regarded as the international trading (or reserve) currency, when there are other stronger and stable currencies like the euro and the pound. This seems to be the question that the Zimbabwean economy policy makers, Gono being one of them, failed to ask themselves before coming up with the decision to completely dollarise the Zimbabwean economy. The only good thing about their decision is that either way using US dollars is much better than using the inflation-laden Zimbabwean dollars which have become completely worthless but all the same they shouldn't put their eggs in one basket because the world over economists and policymakers have a lingering question as to whether they should maintain the anemic dollar as a reserve currency or switch to euros instead. Some argue that market forces will eventually bring the dollar back, as confidence in the U.S. financial system revives. After all, the Chinese aren't likely to cash in their dollars anytime soon, these people say, and the
world still finds the U.S. a prime place to invest its money and buy stocks, despite the recent economic bumps. Yet that might not hold true forever as the lesson of the change of the reserve currency from the British pound to the US dollar forty years ago after World War 2 shows. Prior to World War 2 the British pound was the international trading (or reserve) currency. Helping with this international standing of the pound was the fact that the currency was on the gold standard. That meant pound notes could be exchanged for gold. The Bank of England guaranteed this, and Great Britain had the gold to back up the currency, no matter how many people might wish to convert their money into the precious metal. Back then who would have dreamed that things would change but they did. The Great Depression happened in Britain and it had to take its currency off the gold standard although it still continued as a major trading currency. By this time the US dollar was also in use for international trade. After World War 2 Britain was greatly improverished and by 1967 it was still having serious financial difficulties. Manufacturing had declined. To boost the manufacturing sector, the Labour government at the time decided to devalue the pound thereby making exports cheaper and more competitive. Those behind this decision did not foresee that it would lead to the death of the British pound as an international trading currency. That was the time the American dollar became the world's main trading currency. This is the lesson that now makes the global market take a more cautious view of the relative strength of both the U.S. economy and the dollar itself compared to the Euro and the Pound and is causing most countries to decide to move some of their eggs from that one basket to other baskets.