What is 'Trading Dollars'

Trading dollars is a slang term describing a company that is spending just as much money as it is making on a product that it develops. Trading dollars refers to a break-even business investment. The company is essentially trading its expenses for an equal amount of return, thus the name "trading dollars," as in, "trading dollars for dollars."

BREAKING DOWN 'Trading Dollars'

Trading dollars is a situation that typically describes a waste of effort and resources. While the venture did not lose money, the capital could have been allocated to a profitable venture.

In this sense, any event that results in trading dollars can be viewed as a loss rather than just a break-even event.

For example, a gold exploration company that spends $10 million to mine $10 million worth of gold can be said to be trading dollars. Likewise, an oil company that invests $5 million to extract only $5 million worth of oil is trading dollars.

These business ventures are zero-sum games, where the business's gains are exactly balanced by its losses (or expenses) in product development or in a particular business investment.

Another Definition of Trading Dollars

The idea of sinking money into projects with flat ROI is clearly an unappealing one for most businesses. But another take on the concept of trading dollars was explored in a 2016 Wall Street Journal feature.

In Zimbabwe, "a U.S. dollar is no longer worth a U.S. dollar," according to the article. "Money changers charge $102 in small notes for a $100 bill."

The odd scenario of trading dollars for other dollars at a premium was caused by the devaluation and concurrent appreciation of the U.S. currency against itself, the paper explained, which was a consequence of a Zimbabwe's economic crisis.

The country had begun using U.S. dollar in 2009, as a substitute for its own failed currency. The hope was that it "would bring stability after years of hyperinflation that added 12 zeros to its currency," according to the Wall Street Journal. But a collapsing export market and expatriated dollars meant that "the greenback has become a scarce commodity."

With the expectation that then-President Robert Mugabe would revive the Zimbabwe dollar as currency, American dollars in the bank were suddenly worth less than they were in cash. So as people began hoarding dollars or sending them abroad, the value of the remaining U.S. cash currency only grew.

 

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