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May currency review

Nigeria has ignored pressure for years from international organisations, such as the International Monetary Fund and World Bank, to unify its multiple exchange rate system and devalue the naira, but market forces are less easy to dismiss. With exchange rates on the black market having diverged considerably lately from the main official rate, worsening economic imbalances and creating further scope for corruption, the central bank finally acted in May and devalued the naira by 8% against the US dollar (9% against the euro - see tables below). Unfortunately, and predictably, the moderate devaluation alone wasn't enough to stop black-market exchange rates depreciating even further. Only a full unification of official exchange rates and a more substantial devaluation so that the naira represents fair market value will achieve that.

Countries experiencing largest currency losses in May

Country

Currency code Movement v EUR
3 - 31 May 2021 (%)
Inflation
(%)
Ethiopia ETB -4 19.2
Haiti HTG -8 17.9
Iran IRR* -11 49.5
Mozambique MZN -7 5.2
Myanmar MMK -7 1.0
Nigeria NGN -9 18.8
Paraguay PYG -5 2.5
Seychelles SCR -15 9.6
South Sudan SSP -18 18.3
Sudan SDG -8 341.0
Turkey TRY -5 17.1
Venezuela VES -11 3012.2

* 'Open-market' rate

South Sudan also devalued its currency in May, allowing the pound to fall 18% against the euro, making it the world's weakest currency during the month. This comes on top of a 22% devaluation in April. The latest official exchange rate is EUR 1 / SSP 324, as of 2 June 2021. However, there is also a weekly auction system in place, whose participants are commercial banks and which produces the exchange rates available to expatriate staff (and others) through banks and licensed exchanges. The rate from the 31 May auction was USD 1 / SSP 454 (EUR 1 / SSP 554), which is also much closer to reported rates available on the black market and so probably represents fair value. 

Another big faller in May was the Mozambique metical, which depreciated by 7% against the euro. Its decline comes after a couple of months of major gains, which appear to have been engineered by the central bank and raised doubts among economists questioning the wisdom of what appears to be an unorthodox attempt to keep inflation down

Despite Lebanon's dire economic collapse - among the world's worst since the 1850s, according to the World Bank - its dysfunctional authorities are still refusing to devalue the Lebanese pound. The official rate remains at USD 1 / LBP 1507, where it has been fixed since mid-2018, while the rate at which commercial banks exchange (when rare hard currencies are available) is still stuck at USD 1 / LBP 3900. Both rates massively overvalue the pound, whose more realistic value is represented on the streets, with black-market rates at around USD 1 / LBP 13000. However, a reform in May suggests the central bank is moving towards a possible huge devaluation, allowing some banks to carry out some transactions using a rate of USD 1 / LBP 12000. This feels like a 'testbed' effort and a broader application could follow. Meanwhile, what's left of the economy is almost entirely cash based and increasingly dollarised. Aid from foreign donors, such as the World Food Program, is all disbursed in flown-in dollars now, while companies such as airlines only accept dollars for payment.

Countries experiencing largest currency gains in May

Country

Currency code Movement v EUR
3 - 31 May 2021 (%)
Inflation
(%)
Georgia GEL +4 7.2
Hungary HUF +3 5.1
South Africa ZAR +3 3.2

In other currency-related news this month, France has at last taken some concrete steps towards enabling the launch of West Africa's long-promised new currency, the eco. France's central bank has always guaranteed the value of the West African CFA franc (XOF), which is pegged to the euro and used by Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. It has now begun transferring the necessary funds from Paris to the Banque Centrale des États de l'Afrique de l'Ouest (BCEAO), which will administer the new currency for the same group of nations. The eco will initially remain pegged to the euro, before a planned broadening of the basis to a basket of major currencies. It is hoped that other neighbours will eventually join, but with several big countries in the region still opposed to the move, the eco is not a foregone conclusion yet, despite France's insistence, and a launch date is still unknown.

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

Selected currency movements (v EUR)
Country Currency code % movement to 31 May 2021 v EUR since: Latest official annual inflation (%)
    3/5/21
(1 month)
1/3/21
(3 months)
30/11/20
(6 months)
1/6/20
(12 months)
 
Argentina ARS -2 -6 -16 -36 42.6
Australia AUD -1 -1 +2 +5 1.1
Brazil BRL +2 +5 0 -6 6.1
Canada CAD +1 +4 +5 +4 3.4
Chile CLP -3 -1 +4 +1 2.9
China CNY +1 +1 +1 +2 0.4
Egypt EGP -1 0 -2 -9 4.1
India INR +1 +1 0 -6 5.4
Indonesia IDR 0 -1 -3 -7 1.4
Japan JPY -2 -4 -8 -11 -0.1
Kenya KES -1 +1 0 -10 5.8
Korea Republic KRW -1 0 -3 +1 1.5
Mexico MXN 0 +4 -2 +1 6.1
Nigeria NGN -9 -9 -10 -15 18.8
Norway NOK -2 +2 +4 +6 3
Philippines PHP 0 +1 -1 -4 4.5
Poland PLN +2 +1 0 -1 4.3
Russia RUB +1 +1 +1 -12 5.7
Singapore SGD -1 0 -1 -3 1.3
South Africa ZAR +3 +8 +8 +14 3.2
Sweden SEK +1 0 0 +4 2.2
Switzerland CHF 0 0 -1 -3 0.3
Turkey TRY -5 -14 -10 -27 17.1
United Kingdom GBP +1 +1 +4 +5 1.5
United States of America USD -1 -1 -2 -9 4.2
Venezuela VES -11 -40 -68 -94 3012.2
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