March currency review

A quiet month for currency news allowed us to bask in the glory of getting some predictions right last time! Not only did the Nigerian naira stabilise as expected following major reforms, it then jumped in value even faster than we thought it might, to the point where it was the world's strongest currency in March. This is a remarkable turnaround for the naira, which was floated in February and initially lost significant ground. Some analysts put March's gains down to central-bank intervention in markets, but the very fact that black-market exchange rates followed official ones (indeed, they gained even more) suggests the naira's re-evaluation was market driven. If so, it bodes well for Nigeria's future economy, although with numerous big issues to fix, there will certainly be more exchange-rate volatility ahead. Meanwhile, if currency gains are consolidated, inflation should finally begin to drop.

Similarly, Egypt's big devaluation after the pound was floated, which happened just as we published last month's round-up, appears to be a genuine effort to ensure exchange rates from now on represent fair market value. Investors, not surprisingly, were cheered by the idea (long absent in Egypt, which has overvalued its currency through controls for many years) and bought into the pound, which quickly clawed back some of the losses from the initial devaluation. Overall during the month, the pound fell 34% against the euro (see next table). As with the naira, it is possible Egypt's currency will go from the biggest-fallers table this time to the biggest-gainers one in the next round-up.

March's other big faller was the Zimbabwean dollar. Again, the rapid changes in currency value were due to central-bank policy moves which allowed exchange rates to adjust according to market sentiment. However, Zimbabwe has failed to make other changes to attract investors and its currency would be likely to keep falling if allowed to do so long term. There is an argument that this would actually be best for Zimbabwe's future economic health, but having been reasonably successful in bringing down inflation recently, authorities would be loath to allow it to shoot up again. For that reason, they are likely to reimpose some type of control regime in the near future - a 'gold standard' if reports are to be believed - which would stabilise the Zimbabwean dollar and maybe even inflation, but do little to help with the many economic problems and corruption opportunities that such controls usually cause and which are rife in the country at present.

If you happen to be a currency 'nerd' like me, you are sure to be interested in the latest research into how countries are progressing towards developing digital currencies. However, global mobility teams and expatriate assignees generally should also take notice, because digital currencies have the potential to greatly cut exchange-rate conversion and remittance costs, while also simplifying administration. Indeed, they seem certain to become an important and ubiquitous part of international assignment management in the not-too-distant future - and that's another prediction I feel confident I've got right!

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