Thread by @shaunjlawson

This is absolutely excellent by @davidfrum - because it does that all too rare thing. It explains economics in layman's terms. 👏

David's final point about the danger of sanctions being TOO effective is partly why they don't apply to energy. Yet.

theatlantic.com/ideas/archive/…

At this point, a semi-digression. UK citizens are, of course, almost all paid in pounds and most only concern themselves with foreign exchange when heading abroad: on holiday in most cases.

Where I live - a small upper-middle income country - that isn't the case at all.

Here, expensive things - like electronics or most obviously, property - are priced in US dollars. Which I also pay my rent in.

When I arrived here in 2012, there were 19 Uruguayan pesos to the dollar: the former was a ridiculously overvalued currency. It's now about 43.

What that means is most professionals' bank accounts are in pesos, dollars and euros. Even, in some cases, indexed units, which the government use to keep track of inflation and maintain economic stability.

I have a bank loan priced in indexed units, for example.

So it's exactly as David explains. You just click a button to convert pesos to dollars or vice versa; and dollars, not pesos, are what the middle classes and above save in.

The peso is actually a relatively strong South American currency. Emphasis on 'relative'.

Because if you use a credit card to pay for something in pesos, you're looking at an annual interest rate of between 55% and 100%. 😳😮

I did a double take when I got my first credit card here and looked at the Ts and Cs. "That HAS to be a mistake", I thought. Nope.

Loans in pesos are even worse. Far worse. The compound interest means if you take out a loan for say, 3 years, you'll end up paying double or a lot more back.

Yet what's the annual credit card interest rate in dollars? Usually between about 6.5% and 9%. A whopping difference.

You have to price in that the dollar strengthens against the peso long term - albeit, it's been very stable at between 43 and 45 for about 2 years now.

But it means that if you need to use a credit card, doing so in dollars is imperative. Only some transactions offer that.

So when I monitor my finances, I'm forever doing currency conversions in my head. Which also include pounds because of international clients I have based in the UK.

That Russian business will be hit astronomically by being unable to trade in dollars, euros or pounds is a given.

The rouble is absolute junk. That's not affected the oligarchs and much of Russian business in any way before.

In fact, it'll have HELPED them given they'll have done all their business in foreign exchange, then spent locally in roubles.

Just as people in Uruguay paid entirely in dollars or euros, who then spend locally in pesos, are having a ball.

But those Russian billionaires will be affected now. Big style. It is very difficult to see how that doesn't hugely tighten the noose around Putin.

Incidentally: those Uruguayan interest rates I mentioned?

I do not have the first clue how anyone in Argentina - businesspeople or especially employees - plan for anything at all.

Their inflation rates are insane.

And whereas 10 years ago, there were 0.2 Uruguayan pesos to the Argentinian peso (in other words, the latter was five times stronger than the former), there are now over 2.5.

The Uruguayan peso has gained in strength by TWELVE AND A HALF TIMES v Argentina's currency in a decade

The Argentinian Central Bank cannot stop printing money and its government is always near defaulting again and again.

By contrast, Uruguay maintains all its international obligation and its Central Bank is damn, damn smart. Regardless of which party is in government.

I can even log into the Central Bank website here and check my credit rating for free.

Can't do that in the UK! The measures here - especially indexed units - work and keep the economy amazingly stable. An oasis of calm, basically.