December currency review

Paying staff overseas is complex at the best of times, but the confusion surrounding Lebanon's multiple exchange rates currently may be unprecedented. There are several legal rates supposedly in operation, but some seem impossible to access, and there are even question marks about whether or not the parallel black market is actually illegal. However, some of the confusion relates to attempts to obtain hard currencies such as dollars in Lebanon, which is more of an issue for local nationals trying to protect their wealth. Foreign employees there are more likely to be exchanging hard currencies in order to receive Lebanese pounds. 

Expatriates in Lebanon who are paid via a hard-currency-denominated bank account, who therefore need to make withdrawals, should theoretically be able to do so at the so-called Sayrafa exchange rate, according to official circulars. However, in reality, this rate, which tracks roughly 20% below black-market rates (latest USD1/LBP33000), only seems to be obtainable through international money transfer companies, such as Western Union. The Sayrafa rate seems to be applied by some banks and money changers when the customer is exchanging cash dollars for pounds, so staff paid in cash dollars would be at a significant advantage. Mind you, with Lebanon's economy becoming increasingly dollarised, the best option for those receiving cash dollars might be to simply use them and not exchange them at all.

Those requiring bank withdrawals, however, if the Sayrafa rate can't be found, are left with the Lebanese dollar ('lollar') rate, which in December was devalued from USD1/LBP3900 to LBP8000. This rate does appear to apply for all bank withdrawals and obviously offers more pounds than it did, but it would be costly for employers to apply to pay calculations as it remains a long way from fair value.

Meanwhile, the economic crisis has been such that it may now be difficult to find anyone accepting credit cards for payment, but in these rare circumstances an exchange rate of roughly USD1/LBP12000 would apply. Finally, the old 'official' rate of USD1/LBP1507 still stands but is irrelevant for expatriate purposes.

The Turkish lira in December was once again the world's weakest currency. Eschewing interest rate rises, which would probably stop the slide in the lira's value, President Erdogan introduced an elaborate and expensive insurance scheme for depositors, which basically offers the safeguards normally offered by higher interest rates. The fact that the president's guarantees were not sufficient, despite brief support, to prevent a further currency slump suggests a simple interest rate hike might have been the better option, but what do we know? Meanwhile, Turkey's central bank in vain spent USD 7.3bn in December needlessly (if interest rates had been raised) defending the lira's value.

The Seychelles rupee certainly wins the volatility award for 2021. Having gained 10% against the euro in November, it fell 5% last month. It either lost or gained more than 5% in eight of the 12 months of 2021, but was generally strong, appreciating by a total of 42% against the euro during the year. Remarkably, 42% was exactly how much the rupee fell against the euro during 2020! If ever you needed proof that consistent application over time of ECA's cost-of-living adjustments is by far the best policy when it comes to remunerating foreign staff, then the Seychelles rupee in the last two years would be it.

The recent strength of the Zambian kwacha continues. With the country's inflation still high, such prolonged currency gains could indicate a big cost-of-living adjustment might be necessary to maintain expatriate purchasing power. ECA's interim December 2021 survey for Zambia will be published later in January. Furthermore, the other two countries making the biggest currency gains in December (Angola and Mexico; see table above) also have elevated inflation, so are worth watching too.

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