October currency review

The world's four weakest currencies in October were all African. The continent has been hard hit by the war in Ukraine as food and energy prices have soared, putting great strain on public finances.

Taking the biggest hit of all was the Ghanaian cedi. Ghana's economy has been in a slow-burn crisis, now intensifying, for a decade. Public finances had never fully recovered from high debt levels in the 1990s and 2000s, but successive governments began to spend excessively, especially in the build-up to elections in 2012 and 2016, and after the discovery of oil reserves, which prompted yet more spending despite the long lead time before oil revenues would become available. Now, debt servicing accounts for so much of GDP that the state has little room to invest in economically productive projects, or to support people suffering from soaring food and fuel costs. Meanwhile, precious foreign exchange reserves have been depleted by the higher import costs, while inflation is running far ahead of interest rate rises. Ghana has asked the International Monetary Fund for help - for the 17th time since independence in 1957.

Egypt, whose currency also fell heavily in October, is similarly suffering from a combination of structural economic issues and the impact of the war in Ukraine. Some 80% of Egypt's grain imports usually come from Russia or Ukraine and these foodstuffs have become either unavailable or extremely expensive. Energy prices have increased dramatically too, as they have everywhere, while the Covid-19 pandemic and loss of Russian visitors have done serious damage to tourist revenues, putting further pressure on foreign exchange reserves and the current account. However, things would probably not be as bad as they are if Egypt had a different economic model. When President Al-Sisi, an ex-army officer, came to power in 2014, with the country still in chaos following the Arab Spring uprising in 2011, his priority was to restore order. He did this brutally quickly by using the military not only to suppress unrest but also to run numerous economic entities. Since then, the army's economic power has been allowed to spread to the point where it dominates, along with the state. Foreign investors and the private sector find the business climate unappealing as a result and capital flight has intensified, leaving the government's finances in a precarious state in 2022. IMF help has recently been secured, but without privatising numerous military- and state-run companies, a risky move which is obviously unpopular in the army, Egypt's economy will find it difficult to gain any long-term vigour.

Among other major currency victims in October was our old friend the Argentinian peso. Argentina's economy has been bailed out even more times than Ghana's and the next request for outside help may not be far away, but currently soaring inflation, inadequate interest rates and a chaotic exchange-rate regime are all putting severe downward pressure on the peso. Reports suggest a mass exodus of better-educated people, mainly to Spain, as the economic crisis deepens.

The Vietnamese dong was the most surprising faller this month, as its value has been controlled with close reference to the US dollar for years. However, on 17 October, Vietnam's central bank suddenly announced it was widening the band around the dollar's value within which the dong is allowed to trade. Furthermore, the otherwise vibrant economy is struggling with fuel shortages, partly the result of government price controls.

In other currency news, Lebanon's central bank recently announced that it would devalue the local pound's official exchange rate from USD 1 / LBP 1507 to LBP 15 000 today, 1 November. However, as of yet, the published rate remains unchanged. There are concerns that the move, in the increasingly unlikely event that it does go ahead, would raise inflation even higher and cause extra hardship for Lebanon's long-suffering people. Whether or not such a devaluation happens now or not, some sort of massive reconciliation of Lebanon's multiple exchange rates will certainly be needed at some point if the battered economy is ever to recover long term.

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