When you think ‘siege’ you think of the Middle Ages and months of castles surrounded and stalemated armies. Sieges don’t happen in the modern era. Well a siege actually did happen in Sarajevo (Bosnia) between 1992 and 1995. The Serbs completely surrounded the city and pounded Sarajevo daily with bombs and sniper fire from the high ground they controlled. The Bosnians’ only link to the outside world was a 750 yard tunnel dug beneath the United Nations controlled airport. Without this lifeline who knows how the population would have gotten even the barest necessities.
I am not here to debate how or why the world allowed a siege of a major city to go on for 1,400 days. This is for the history books. The Balkan question is very complicated. What interested me when I visited Sarajevo recently was how did the small stuff get done, how did transactions get made and what was the currency that had any value? The answer is that the most valuable currencies inside the siege area were cigarettes and Deutschmarks. The Euro had not yet been introduced and the Deutschmark was the strongest currency in Europe. It had value. As did cigarettes. The Bosnians are inveterate smokers, and a cigarette was real currency.
The Sarajevo question, that is what acts as an effective currency and store of value in time of trouble, is playing out in other places today. Venezuela, Turkey and Iran come to mind. In Iran a traditional store value of gold, has become an important currency of choice. Demand for gold bars and coins has tripled year over year. Gold bugs everywhere are cheering arguing that this is proof positive the yellow metal is the go to asset when economies implode. It’s interesting to note however that the global price of gold has done nothing for some time and in fact is actually down year-to-date. The world is not really beating a path to gold even if the Iranians are.
Venezuela, another country with a collapsing economy and currency, is seeing a strong demand for “things.” Property and cars and foodstuffs have become stores of value as the local currency implodes (see picture). This is what happened in Weimar Germany after World War I when hyperinflation destroyed the Deutschmark. The winners were industrialists who owned physical assets and farmers who had food to sell or barter. Of course, a major hedge for a collapsing currency is the currency of a stronger country. This might be the Euro or the Japanese Yen, but right now the currency of choice is still the U.S. Dollar. The U.S. has its problems today, but as they say in the land of the blind - the one-eyed man is king. For now, we are still that one-eyed man.