December currency review

On 1st January, almost exactly a decade after it applied to join, Croatia became the Eurozone's 20th member state. With an economy dominated by tourism, adopting the single currency should boost visitor numbers, while also making payments easier and cheaper. Interest rates should be lower in the long run, spurring investment and GDP growth, while Eurozone membership provides a financial safety net too. The move should make life simpler for both expatriate staff in Croatia and global mobility teams managing their pay and purchasing power. What's not to like?

December rounded off an extreme year for exchange-rate movements with some typically heavy currency falls. Our old friends the Argentinian peso, the Venezuelan bolivar and the Zimbabwe dollar lost more ground, falling 9%, 41% and 7% respectively against the euro (see first table). After a slow start, Argentina does at least appear to be honouring the reform it introduced on 3 November, which allows transactions on foreign credit and debit cards to be made at the so-called 'tourist rate', which is much closer to fairer-value rates available on the black market. The official rate is greatly overvalued and represents a poor deal for visitors using it to convert foreign currencies to local pesos. Tourism and foreign investment should benefit in the months ahead.

* open-market rate

** 'Sayrafa' rate

Central banks in both Lebanon and Syria engineered devaluations in currency values, as exchange rates on black markets rapidly diverged from official rates. The Iranian rial fell again as anti-government protests and labour unrest continued.

Although the Pakistani rupee was more stable this month, it could be headed for a big devaluation too, as a black market for foreign currencies has recently developed and exchange rates are diverging fast.

Similarly, the Egyptian pound is likely to see more volatility and possibly weaker values in the year ahead, assuming the central bank makes its exchange-rate regime more flexible as the International Monetary Fund insists it must as part of a financial support package agreed last month.

Russia's economy and currency were surprisingly robust in 2022, but sanctions and energy-price caps may be starting to have more of an impact on the country's foreign-exchange reserves. Until recently, the central bank was able to support the rouble so that it bounced back sharply following its slump immediately after the invasion of Ukraine. However, in December the bank was unable or unwilling to hold up the currency's value, which fell 20% against the euro. The year ahead seems unlikely to produce an end to the war, so Russia's economic problems could worsen.

Only two currencies gained more than 3% against the euro in December (see table above). The Ghanaian cedi was by far the world's strongest during the month, as hopes of a loan deal with the IMF were raised. However, Ghana's currency still lost 35% against the euro in 2022 as a whole.

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