January currency review

As of today, Lebanon's old official exchange rate of USD 1 / LBP 1507 is no more. That rate stood for 25 years, even surviving the country's long economic crisis up to now. It has been replaced by a new, hugely devalued official rate of USD 1 / LBP 15 000. The Bank of Lebanon had mooted this change back in October, but shied away until now because of fears of heating up inflation again. However, maintaining a massively over-valued exchange rate is expensive in foreign currency terms and a worsening shortage of US dollars eventually forced its hand.

The move will help reduce some of the monetary chaos in the economy, but with other exchange rates offering much fairer value than even the new official rate, imbalances and opportunities for corruption will continue. The 'Sayrafa' rate, for instance, which ECA uses for its cost of living analyses, was at USD 1 / LBP 38 000 earlier today, while latest street rates are around USD 1 / LBP 63 000. There will surely be more devaluations of the official rate to come.

Meanwhile, as predicted last time, the Egyptian pound lost considerable further ground in January after the central bank was forced to liberalise its management of official exchange rates. The reason behind the move was similar to Lebanon's, in that holding the currency's value higher than free markets would allow is costly in terms of precious dollars, which have been in short supply in Egypt since Russia's invasion of Ukraine. However, the push came from the International Monetary Fund, which agreed to provide an emergency loan to Cairo, but only if a more flexible currency regime was introduced. 

The pressing need for emergency aid from the IMF, amid economic crisis and foreign-exchange shortages threatening the supply of imports, was also the main driver behind the devaluation of the Pakistani rupee in January. The State Bank of Pakistan removed its cap on exchange rate values, allowing the rupee to depreciate in line with market sentiment, as stipulated by IMF negotiators. 

For now, Lebanon's new official rate will be fixed against the dollar. It is not clear how much, if at all, the central banks of Egypt and Pakistan intend to interfere with exchange markets from here on. If they allow their currencies to float freely, then future losses are likely to be more gradual. For expatriate staff in these countries, the devaluations mean more local currency can be obtained when exchanging foreign currencies, offsetting to at least some degree the high inflation persisting in all three. 

* Open-market rate

In another solid month for the euro, only two currencies gained more than 3% against it, as our next table shows. A strong upward trend in copper prices has driven the Chilean peso's recent appreciation, while a rebound in oil prices is partly responsible for the Colombian peso's health in January.

In other news, Nigeria has lifted the limits it placed on cash withdrawals a few months ago, which had been causing problems for international assignees, among others, in the country.

Argentina and Brazil have announced plans to forge closer economic ties, including the possibility of creating a common currency for the region. This could take a while!

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