A number of countries, especially in our Arab region, suffer from economic crises, one of the negative consequences of which was the decline in the value of their local currencies, which put the owners of savings in a difficult situation, as they see the real value of their savings declining at rates that they do not know the end of.
There are two types of economically distressed Arab countries, the first type that has been afflicted by the economic crisis as a result of several imbalances such as (Egypt, Tunisia and Lebanon) and the second type as a result of conflicts and wars such as (Libya, Yemen, Syria, Iraq and Somalia).
What makes the task of protecting savings difficult is that it is done individually, and therefore bearing the result of using any mechanism to protect savings returns positively and negatively to its owner. Some tend to buy foreign currencies, a second party tends to acquire gold, and a third party tends to buy capital assets, from land and real estate. And otherwise.
The experiences in many Arab countries, especially during the last decade, made individuals fearful of the monetary policies of governments, whether with regard to the interest rate or the exchange rate.
The issue of thinking about benefiting from the high interest rates offered by banks during high inflation rates quickly collapses in front of the collapse of the value of local currencies, in addition to the fact that governments do not maintain their policy of high interest rates for long periods, which makes depositors of funds in banks in local currencies feel remorse and lack of confidence. by governments.
Types of savings
First, we must differentiate between saving and hoarding. Saving is the avoidance of part of the income of individuals or institutions, for current spending, in order to pay it to finance the investment process, through individual tracks, or through institutions or banks, and therefore it is money that is recycled within the economic cycle. .
As for hoarding, it is individuals or institutions keeping part of the income, and not involving it in any economic activity, and therefore it is a decision to remove that money from the cycle of economic activity.
Savings are divided according to their capacity, into two types:
Official savings: which are deposited in banks, post offices, or institutions designated by the state to keep the savings of individuals and institutions, whether this behavior is in return for a return or interest or without it, and from here it is easy to count them and estimate their percentage of the GDP.
Informal savings: They are kept in homes or institutional coffers, and the size of these savings depends on several things, including the applicable tax system, the return on savings, and the individuals’ sense of confidence in financial institutions, whether governmental or affiliated with the private sector. Savings haphazardly without reaching real numbers.
There are certain situations that make countries stand on the value of unofficial savings, and that is in the event of a change in the issuance of official currencies, so savers rush to present their savings and obtain new money, otherwise they will lose their savings.
Informal savings also appear when new opportunities for investment with a good return are offered, or speculations, or in the event that the government or the private sector offers opportunities to acquire assets, such as land, real estate, cars, and so on.
How are savings protected?
The mechanism of action to protect the savings differs from one case to another. If the process of declining local currencies is rapid, then the action is to get rid of them as soon as possible in order to obtain a safe alternative that is easy to obtain.
But if the process of decline in local currencies is slow, and can be predicted throughout the year, for example, then here it is possible to choose between different alternatives, especially if the available alternatives differ in terms of their returns or the ability to monetize them.
It is possible to refer here to the various mechanisms to protect savings by individuals and institutions, including the following:
Foreign currencies:
This is the quick option that savers resort to to protect their savings, especially if it is easy to obtain, but often what is accompanied by cases of the collapse of local currencies, the inability of the banking system to provide foreign currencies, so there is the black or parallel market, to be an alternative to the market Official, to meet the needs of savers, or importers.
However, in light of the reality of the crisis Arab economies, things are not safe with regard to the exchange rate, especially after the crises related to the decline in the value of local currencies subside, so governments resort, through their intervention in the exchange rate, to improve the performance of local currencies against foreign currencies, which exposes savers to losses.
Especially if they keep their savings in the long term, which requires savers to follow the performance of the exchange market, whether official or otherwise.
Gold:
One of the important mechanisms that savers resort to besides foreign currencies, in order to preserve their savings, but here we must point out that gold is a safe haven in light of crises, but in natural conditions, there are other determinants, that make keeping gold a risk, due to the existence of speculation In the international market between gold and oil, as well as interest rates in the US market.
What distinguishes the two previous alternatives (foreign currencies and gold) is the speed of their liquidation when needed, or the relief of the local currency crisis.
Preservation of assets
: It is usually advised, in the event of a significant decline in local currencies, that individuals tend to transfer their savings into capital assets, such as land, real estate, factories, cars, etc., but one of the problems with this alternative is that the liquidation of assets may take some time, which is what Not suitable for some savers.
Investing in important sectors
: Among the most important of these sectors are the food and drug sectors, as they are indispensable commodities, and they maintain high price flexibility, which makes the investor always in a state of balance between the value of his capital and the prices offered in the market, and achieving guaranteed profit margins.
This alternative gives an opportunity for the economic policy maker to promote a group of projects in the sectors of food, medicine and other commodities with guaranteed returns, whether these projects are implemented by the public or private sector.
In this case, it is better for the government to grant many advantages to these projects, because it guarantees them the production of commodities through which imports and the need for hard currencies can be dispensed with, thus improving the position of local currencies.
Risk in cryptocurrencies:
Some propose cryptocurrencies as one of the alternatives to protect savings, but this requires the provision of foreign currencies to buy digital currencies, and also imposes a large part of the risk, especially in light of what these currencies have been exposed to during the last period, from a significant decline in their value, but goes Some point out that it is a good long term opportunity.
One of the things that are difficult to deal with in cryptocurrencies is that it is almost automatic for the elite, and not for the general savers, who do not have access to the technology of the cryptocurrency market.
In conclusion, if the issuance of money is one of the sovereign rights of the state, then it is also one of its duties to secure and protect the returns of individuals’ contribution to economic activity, and among those returns are savings, and the protection of savings is only guaranteed by building strong economies.