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Last one in the series!

We looked at Emerging Markets yesterday... 👇

FX: Beta Kings... Emerging Market Currencies Part 1
Rounding off the FX series with the best of the bunch. If you enjoy volatility, pain, and always go back to your crazy ex for more, then these are the currencies for you!

Now we need some examples.

Argentine Disaster

The modern Argentine economy swings between default and bailout every few years so it's hard to imagine that Argentina was ever an economic superpower.

But it was.

Back in the early 1900's, Argentina was one of the worlds major goods exporters, especially of agricultural products such as meat and grain.

The Great Depression reduced foreign trade dramatically, but they weathered the storm and were considered one of the strongest economies in the world after World War 2...

Up until 1962 the Argentine per capita GDP was higher than that of Austria, Italy, Japan and of its former colonial master, Spain.

Then it all started to go wrong...

Successive governments from the 1930s to the 1970s pursued a strategy of import substitution to achieve industrial self-sufficiency.
The era of import substitution ended in 1976, but at the same time growing government spending, large wage increases and inefficient production created a chronic inflation that rose through the 1980s.
The measures enacted during the last dictatorship also contributed to the huge foreign debt by the late 1980s, which became equivalent to three-fourths of the GNP.

Argentina’s unprecedented economic boom-to-bust history | DW | 04.08.2020
“Rich as an Argentine” was once a common phrase, back when the South American nation was one of the wealthiest in the world. Today, it faces bankruptcy and staggering debt in a saga it can’t seem to escape.

The spiral continued until July 2001 when foreign investors entirely lost confidence in the Argentinian economy, and the country lost all access to international financial markets.

What caused it? Well, it's rarely just one thing...

The Argentine economic crisis was caused by the undesirable confluence of several economic events: a hard currency peg, currency overvaluation, economic rigidities, inappropriate fiscal policy, external shocks, large scale foreign currency borrowing followed by a sudden stop in capital inflows and enduring IMF support played an important role in the course of the crisis.

The Argentine Crisis 2001/2002
In the late 1990s, Argentina’s currency peg to the US dollar, pro-cyclical fiscal policies and extensive foreign borrowing left the country unable to deal with economic shocks. This led to a severe currency, sovereign debt and banking crisis.

Here's how the Argentinian Peso has fared over the past 20 or so years...

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So, that's an example of a massive failure covered. What does it look like when an emerging economy succeeds?

South Korean Success

A stunning success story. After the Korean War ended in 1953, South Korea was one of the poorest, least developed nations in the world.

In the 60's, it was an agriculture based economy.

Now, it's the 10th largest economy in the world and home to giants like Samsung, Hyundai & LG.

South Korea has persistently implemented long-term policies for economic development, becoming a major global exporter with a solid business environment.

How Did South Korea’s Economy Develop So Quickly?
In the 1960s, South Korea was an agriculture-based economy. By 2016, it was the 11th largest economy in the world.

And the South Korean Won has remained broadly stable (with a few interventions from the Central Bank...)

One to Watch: Poland

According to this 2015 McKinsey Report: Poland 2025: Europe's new growth engine, Poland is poised to become, in the next decade, one of Europe’s strongest engines of growth as well as a dynamic force in the global marketplace.

As the Polish economy emerged from decades of state control, industries were privatized and market-based competition was introduced, followed by painful reforms.
Within a few years, Polish GDP and living standards began to rise significantly, as the country started on a growth path that has not ended.
Accession to the European Union in 2004 confirmed the success of Poland’s effort and indicated a development path that was leading toward the level of Europe’s most advanced economies.

In recent years, nationalist tendencies have crept back in, alongside tensions with the European Union, and there's no doubting the 'brain-drain' of talented Polish workers leaving for greener pastures.

This is just one example. 👇

Tesla’s gigafactory electrifies California-Germany culture clash
With final approval for its German factory potentially just weeks away, Tesla’s Elon Musk will make an appearance in the tiny town of Gruenheide this Saturday to host a county fair.

Gruenheide is a 45-minute drive from the Polish border, and Tesla is widely expected to recruit workers from there.
"20% under German wages is still very good pay for Polish workers," Ferdinand Dudenhoeffer, an expert on the German auto industry, said.
"German automakers couldn't do it; they'd get into big trouble with the unions. But Tesla can do it."

If Tesla want cheaper workers, why don't they just open in Poland?

Poland's judiciary is no longer independent. There's been a trend of nationalisation in the energy and banking sectors too and the rule of law isn't especially stable.

If you're Tesla, opening in Germany is a no-brainer: you get all the benefits of German legal stability, and free movement of labour provides cheaper Polish workers on your doorstep.

The path for the Polish Zloty will depend on the governments ability to push through economic development that actually benefits Poland...

Fundamentally, investing in any emerging market is high risk. There are more factors to consider than Developed Markets such as political instability, regulation & corruption, and a greater sensitivity to negative news (volatility).

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