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May currency review: Venezuela postpones bolivar overhaul

As the economic crisis in Venezuela deepens and the value of the bolivar shrinks to new lows, locals are fleeing the country in large numbers. Foreign companies and their staff, many of whom have been there for years, are pulling out too, as 'normal' life and smooth running of operations become increasingly difficult.

One change which might have helped everyone just a little bit - the introduction of higher-value banknotes, which was supposed to have happened yesterday (4 June) - has been postponed, with government sources now saying that the move is unlikely to happen for several months. President Nicolas Maduro, who held on to power in an election on 21 May that most analysts considered to be rigged, had been criticised for trying to rush the reform through and it seems the new notes have not yet been printed.

As the bolivar's value has fallen to near worthlessness and hyperinflation has taken hold, Venezuelans have commonly been seen carrying bags or even wheelbarrows full of cash just to do fairly standard shopping. By striking three zeros from banknote values, such requirements would have eased somewhat, but to no avail as yet. 

Unfortunately, there is also little prospect of improvement in other aspects of what must be a very difficult living environment, both for the dwindling number of expatriate staff left in Venezuela and locals alike.

Countries experiencing largest currency losses in May
Country
Currency code Movement v EUR
30 Apr - 4 Jun 2018 (%)
Inflation
(%)
Argentina ARS -17 25.5
Brazil BRL -4 2.8
Turkey TRY -9 10.9
Uruguay UYU -6 6.5
Venezuela VEF -35 13779.0

With the US dollar so strong in May, emerging-market currencies generally suffered, with the Argentinian peso, Brazilian real and Turkish lira being hit harder than most (see table above). The dollar's strength is making US interest rate hikes more likely and curbing investment in emerging markets. In addition, as the links detail, all three of these high-profile countries have significant domestic issues to deal with too.

Italy's political crisis gave the euro one of its weakest months for a while, but still only two currencies gained more than 4% against it in May, as the next table shows.

Countries experiencing largest currency gains in May
Country
Currency code Movement v EUR
30 Apr - 4 Jun 2018 (%)
Inflation
(%)
Trinidad & Tobago TTD +5 0.8
Uzbekistan UZS +5 14.4

In other news, a recent fact-finding trip to Zimbabwe by one of ECA's International Data Researchers has revealed that the economy there is fast becoming cashless, and not by design. Economic activity is yet to recover from the collapse suffered during the Mugabe decades, and cash is in such short supply, but still vital for importers, that many retailers offer big discounts (often as much as 50%) to those willing to pay with it. Cash machines (ATMs) are universally empty, according to reports and our researcher's experience. So-called 'bond notes', the value of which is supposed to be at par with US dollars, are actually worth 50% less, but still attract discounts when used for payment. Credit and debit cards are generally the default form of payment in shops and restaurants likely to be frequented by expatriates, and holding widely accepted cards is essential for foreign staff. Having at least some of their pay delivered in hard US dollars would also be very useful.

If you need help or advice with managing your international assignees' remuneration, do please get in touch.

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

Selected currency movements (v EUR)
Country Currency code % movement to 4 June 2018 v EUR since: Latest official annual inflation (%)
    30/4/18
(1 month)
26/2/18
(3 months)
4/12/17
(6 months)
5/6/17
(12 months)
 
Argentina ARS -17 -19 -42 -62 25.5
Australia AUD +3 +2 +1 -2 1.9
Brazil BRL -4 -9 -12 -20 2.8
Canada CAD +3 +3 +1 0 2.2
Chile CLP -1 -1 +4 +2 1.9
China CNY +2 +4 +5 +2 1.8
Egypt EGP +2 +4 +1 -3 13.1
India INR +3 +2 -2 -8 4.3
Indonesia IDR +4 +4 -1 -8 3.4
Japan JPY +3 +3 +5 -2 1.1
Kenya KES +3 +5 +3 -2 3.7
Korea Republic KRW +3 +5 +3 0 1.3
Mexico MXN -3 -2 -5 -11 4.6
Nigeria NGN +4 +5 +2 -17 12.9
Norway NOK +1 +1 +3 -1 2.4
Philippines PHP +2 +4 -3 -10 4.3
Poland PLN -2 -3 -2 -3 1.7
Russia RUB +4 -5 -4 -14 2.4
Singapore SGD +3 +4 +3 0 0.2
South Africa ZAR +1 -4 +9 -2 4.5
Sweden SEK +2 -3 -3 -6 1.7
Switzerland CHF +4 0 +1 -6 0.8
Turkey TRY -9 -15 -15 -35 10.9
United Kingdom GBP 0 0 +1 0 2.4
United States of America USD +4 +5 +2 -4 2.5
Venezuela VEF -35 -64 -86 -86 13779
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