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April currency review

In recent posts we've seen how Covid-19 has decimated global demand for manufactured goods and natural resources, bringing big currency falls for exporting countries. Zambia, for instance (see first table), a big copper exporter, has seen its exchange rates become the worst performing in Africa in 2020. Now, the almost total ban on tourism due to lockdowns is having the same effect on currencies of popular holiday destinations.

The Seychelles rupee was hardest hit by the slump in tourism in April (see first table). The island nation's free-floating currency lost 20% of its value against the euro, as a sudden shortage of hard currencies, brought about mainly by the lack of holiday bookings, weakened the local rupee dramatically. Turkey has a much broader-based economy, and a complex set of economic problems to deal with, but its tourist industry is a huge contributor to its prosperity and losses in that sector added to the lira's depreciation this month. South Africa's currency, the rand, also weakened on account of the tourism slump, although the government's much-praised response to Covid-19 has lessened the downward shift.

Tourism is also important for Brazil. However, the real's weakness - it has lost nearly a quarter of its value against the euro in the last quarter (see last table below) - has resulted as much from political issues as health ones. President Bolsonaro's response to the pandemic has been greatly criticised, but arguably his failure to push through vital reforms to improve the economy long-term has been of greater significance for exchange rates. The central bank has stepped in to try to boost GDP growth by cutting interest rates, but those cuts have added to the downward pressure on the real. Some analysts expect the currency to rebound once Covid-19 pressures ease, but this may not happen, because most competitor countries are likely to be recovering at the same time. As far as cost of living for expatriates is concerned, the currency losses will have a negative effect on ECA's indices. Furthermore, inflation, which often rises after a currency decline, is actually falling (latest 3.3% in March from 4.0% in February), as domestic demand is held back by the coronavirus crisis, so the downward pressure on the index from the real's fall will in many cases be compounded by the inflation factor. Such situations can complicate expat pay reviews, so please get in touch if you need advice.

Countries experiencing largest currency losses in April
Currency code Movement v EUR
30 Mar - 4 May 2020 (%)
Brazil BRL -6 3.3
Seychelles SCR -20 0.8
South Africa ZAR -5 4.1
Tajikistan TJS -5 9.3
Turkey TRY -7 11.9
Uzbekistan UZS -5 14.5
Venezuela VES -58 2430.6
Zambia ZMW -7 14.0

The Venezuelan bolivar was, as it has so often been in the last two decades, the world's weakest currency over the past month. A mini economic recovery in Caracas at the turn of the year came about because of creeping dollarisation and the loosening of some inadvisable government controls. However, with energy demand and oil prices having collapsed, the country's only remaining exportable commodity is reaping far fewer dollars. The shortage of greenbacks has swiftly ended the economic upturn and put even more downward pressure on the bolivar. It has seldom been easy for global mobility teams to pay international staff in Venezuela, but the situation is almost impossibly complex now. The bolivar is virtually worthless and increasingly hard to obtain. Many prices are displayed only in hard currencies, particularly dollars, but dollars are in short supply and expats may struggle to get their hands on them. Unfortunately, there is no perfect solution for crisis-ridden Venezuela at present, but that doesn't mean ECA can't help ease any difficulties you may be encountering. Again, please contact us if you need to.

Speaking of dollarisation, the government of Zimbabwe has lifted the ban on the use of greenbacks, having recently fixed the value of the Zimbabwean dollar to its US namesake again, at a rate of USD 1 / ZWL 25. The moves should stabilise the economy to some degree, but inflation as yet continues to soar (latest 676.4% y-o-y).

Russia, which is threatened with real hardship by the dreadful combination of coronavirus and much lower oil prices, saw some relief in April as oil prices recovered somewhat and the rouble bounced back 5% against the euro (see next table). Indeed, Russia's currency wasn't the only one to benefit from the partial bounce-back in commodity prices, as the next table shows:

Countries experiencing largest currency gains in April
Currency code Movement v EUR
30 Mar - 4 May 2020 (%)
Australia AUD +6 2.2
Belarus BYN +7 4.8
Georgia GEL +6 6.1
Indonesia IDR +8 3.0
Kazakhstan KZT +5 6.4
Russia RUB +5 2.5
Ukraine UAH +5 2.3

The crisis in Lebanon continues to develop, with more rioting seen on the streets of Tripoli in the last fortnight following the central bank's effective devaluation of the pound. The 'official' exchange rate remains pegged at USD 1 / LBP 1506, but the parallel rate, which is the effective one for most purposes now, has swung about considerably. Having set the new rate at USD 1 / LBP 2600 originally, the central bank has put it as low as LBP 3800, but now seems to have settled for a rate of LBP 3200. It claims this rate will be permanent, but that seems highly unlikely to us.

In other currency-related news, Nigeria has come under renewed pressure to fully unify its exchange rates, having taken a big step in that direction with a devaluation we reported on in March. With its oil revenues hit hard by falling prices and loss of demand, the government has secured emergency loan funding from the International Monetary Fund, which has declared a "special interest" in seeing Nigeria follow through on its commitment to abandon its multiple-exchange-rate regime. Expect another move soon.

Iran has also taken a step towards a major currency reform, with its parliament in early May authorising the replacement of the rial with the toman - each toman will be worth ten thousand rials, so the reform will effectively strike four zeros from banknotes etc. If the Guardian Council ratifies the change as expected, the central bank will then have a maximum of two years to implement it.

Finally, here is this month's selected currency movements table:

Selected currency movements (v EUR)
Country Currency code % movement to 4 May 2020 v EUR since: Latest official annual inflation (%)
(1 month)
(3 months)
(6 months)
(12 months)
Argentina ARS -3 -8 -8 -32 48.4
Australia AUD +6 -3 -5 -7 2.2
Brazil BRL -6 -22 -26 -27 3.3
Canada CAD +1 -5 -5 -3 0.9
Chile CLP 0 -4 -8 -17 3.7
China CNY +1 -1 +1 -3 4.3
Egypt EGP +1 +1 +4 +9 5.1
India INR +1 -4 -5 -5 5.9
Indonesia IDR +8 -8 -5 -4 3
Japan JPY +2 +2 +3 +6 0.4
Kenya KES -2 -6 -2 -4 6.1
Korea Republic KRW 0 -2 -3 -4 1
Mexico MXN -4 -23 -22 -22 3.2
Nigeria NGN -4 -7 -6 -7 12.9
Norway NOK +2 -10 -10 -15 0.7
Philippines PHP +2 +1 +2 +4 2.5
Poland PLN -1 -6 -7 -6 4.6
Russia RUB +5 -15 -14 -12 2.5
Singapore SGD +2 -3 -2 -2 0
South Africa ZAR -5 -20 -20 -22 4.1
Sweden SEK +2 -1 0 -2 0.6
Switzerland CHF 0 +1 +4 +7 -0.5
Turkey TRY -7 -15 -19 -15 11.9
United Kingdom GBP +3 -4 -2 -1 1.5
United States of America USD +1 +1 +2 +2 1.5
Venezuela VES -58 -58 -87 -96 2430.6
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