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November currency review: lari the autumn lamb

ECA International

As winter approaches, year after year, sentiment towards the Georgian lari becomes very cold indeed. You can almost set your watch to it.

Records show significant falls in the lari's value in the last quarter of every year since 2008 at least, and 2017 is no exception. Georgia's currency was the world's weakest in November, falling 9% against the euro (see first table).

The reliable seasonal phenomenon is usually blamed on the end of the tourist season. Millions of visitors from all over the world bring a huge influx of foreign exchange into Georgia, including roubles, euros and dollars. But as the last holidaymakers leave in the autumn, demand for local currency falls sharply and its value slumps.

The trouble with this explanation is that, if it really were the overriding cause, then the lari should also rise in value as the tourist season gets under way each year, but statistics show that this rarely occurs to any great degree. So what is happening?

Firstly, it must be said that the lari has generally been on a long downward dive ever since the Russian invasion of 2008. Georgia's economy has struggled since that brief war destroyed much of its infrastructure. Political divisions and instability haven't helped. So, the waning of demand for local currency at the end of each tourist season just accelerates a well-established trend, whereas improvement in demand at the start of the season flies in the face of too strong a prevailing wind.

But it is likely there is another even stronger influence at work: people's expectations. Because, if a market trend is as reliable as lari the autumn lamb's seems to be, you can be certain that many of those in the know will invest accordingly and make the annual sacrifice of Georgia's currency value a self-fulfilling prophecy. Expect a repeat in late 2018.

Countries experiencing largest currency losses in November
Country
Currency code Movement v EUR
30 Oct - 4 Dec 2017 (%)
Inflation
(%)
Belarus BYN -4 5.4
Chile CLP -4 1.9
Georgia GEL -9 6.4
Ghana GHS -4 11.7
Kyrgyzstan KGS -4 3.6
Liberia LRD -8 13.1
Madagascar MGA -4 8.2
Norway NOK -4 1.2
Russia RUB -4 2.7
Turkey TRY -6 11.9

In other currency news, the government of Sudan has vowed to unify official and unofficial exchange rates no later than the end of 2019, in order to attract foreign investment. Such a move has been mooted for years, but it would require a big devaluation of the official rate to marry it with black-market rates, and push inflation up, probably considerably. Note therefore that this news item may be less reliable than the last one!

And Venezuela, which can nearly always be relied upon to appear in this blog, is planning to create a new crypto-currency, which President Maduro assures us will ease his beleaguered country's economic crisis. "The 21st Century has arrived!" he said, giving no details about when or how the new venture might be launched.

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

Selected currency movements (v EUR)
Country Currency code % movement to 4 December 2017 v EUR since: Latest official annual inflation (%)
    30/10/17
(1 month)
4/9/17
(3 months)
29/5/17
(6 months)
28/11/16
(12 months)
 
Argentina ARS 0 0 -14 -25 22.8
Australia AUD -3 -5 -4 -10 1.8
Brazil BRL -2 -4 -6 -7 2.7
Canada CAD -2 -3 -1 -7 1.4
Chile CLP -4 -3 -2 -7 1.9
China CNY -2 -1 -2 -7 1.9
Egypt EGP -3 0 -4 -12 30.8
India INR -2 -1 -6 -6 3.6
Indonesia IDR -2 -1 -8 -13 3.6
Japan JPY -1 -2 -7 -12 0.2
Kenya KES -2 0 -6 -14 5.7
Korea Republic KRW +1 +3 -3 -4 1.8
Mexico MXN 0 -5 -7 -1 6.4
Nigeria NGN -2 -1 -18 -28 16.2
Norway NOK -4 -7 -5 -9 1.2
Philippines PHP 0 +1 -7 -13 3.5
Poland PLN +1 +1 -1 +5 2.2
Russia RUB -4 -2 -10 -2 2.7
Singapore SGD -1 +1 -3 -6 0.4
South Africa ZAR +1 -6 -13 -9 4.9
Sweden SEK -2 -5 -2 -2 1.7
Switzerland CHF -1 -2 -7 -9 0.7
Turkey TRY -6 -14 -17 -28 11.9
United Kingdom GBP 0 +4 -1 -4 3
United States of America USD -2 0 -6 -12 2
Venezuela VEF -2 0 -6 -12 741
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