12 Critical goods

The availability of items determine the value of others. A reduction in their supply leads to various crises.

Foreign currency

If an entity in country B wants to buy something from an entity in country A, it needs to pay in some currency used by country A: it could still have a choice among a set of currencies like $, yuan etc.

Shortage

Sometimes there is a shortage in country A of currency accepted by country B’s entities.

Cause

Trade deficit is usually the cause: the country imports more than it exports. For example: due to a drop in tourism which in-turn could be due to higher oil prices.

Consequences

So due to the imbalance in supply and demand, foreign currency is suddenly more valuable. So, the country may be unable to import essential food items.

Response

Immediate loan

Typically countries attempt to solve this problem by getting a foreign currency loan from an agency such as the IMF, which then imposes certain conditions to try to ensure that such foreign currency shortage does not re-occur.

Long-term solution

These conditions aim to reduce the reliance of the country on foreign goods by making people of the country collectively poorer, which is accomplished by currency devaluation or by reducing public services so as to increase individual expenditure or by wage cuts. These conditions often lead to social unrest.