January currency review

Given that global geopolitical stress levels are currently so high, January was a remarkably stable month for currencies. As our tables below show, only three fell more than 2% against the euro, while only one, the Sri Lankan rupee, gained more than 3% against it.

The Zimbabwean dollar, not for the first time, was the world's weakest currency in January. Aside from all the issues arising from the dysfunctional state of both governance and the economy, Zimbabwe's currency is being undermined by ever-increasing dollarisation. As US dollars become the go-to means of exchange, demand for the Zimbabwean dollar declines - it has lost 92% of its value in the last 12 months. Since May 2023, its value has been allowed to float more freely, enabling it to fall, often heavily. For international assignees working in Zimbabwe and receiving pay in US dollars, however, the fate of the local currency is largely immaterial. The country's still-high-but-falling official inflation rate is also fairly meaningless, because Zimbabwe's inflation in US dollar terms is negative.

The other big faller this month was the Iranian rial, as tensions in the Middle East ratcheted up and international pressure on the Tehran government to rein in its proxy military forces in the region made the prospect of sanctions or other actions against it more likely.

In other currency news, Bangladesh's central bank has announced it will shortly introduce a 'crawling-peg' regime against the US dollar. A crawling peg limits a currency's movement by only letting it be traded within a certain band (usually reset daily). It is not clear how much movement will be allowed against the dollar, but unless it is significant, the black market for foreign currencies could be reinvigorated, causing divergence between official and illicit rates, and foreign-exchange reserves, which are already depleted, could shrink further. Hopefully, this will be a step towards a market-driven exchange rate rather than a permanent 'fix' that brings more problems than it solves.

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