September currency review

The dollar's relentless rise may help tame inflation in the United States, but it is having the opposite effect elsewhere. The world is so uncertain at the moment that investors seek only the most secure havens for their money, and foremost among them is the dollar. US inflation has forced the Federal Reserve to quickly raise interest rates, so the dollar offers not just security but better returns too. As a result, huge sums are fleeing riskier bets in emerging and other economies, heightening risks of recession and sending plenty of currencies down (as the tables below show). Weak exchange rates, commodities being priced in dollars, trade transactions mostly carried out in dollars, and much emerging-market debt nominated in dollars, have combined to bring serious problems in numerous countries, not least rampant inflation.

The good news for global mobility teams, at least, is that the traditional cost of living equation for international staff, of high inflation off-setting currency weakness, has become the norm again. Regular readers will recall that earlier this year we saw lots of countries with both high inflation and rising currency values, a combination which makes it more complex and costly to protect expatriates' spending power. It was an interesting phenomenon, but thankfully a temporary one. However, there is no doubt that exceptional volatility in the global economy can make managing international staff more challenging, so if you need guidance on any aspect of expatriation anywhere in the world, please do get in touch.

* Open-market rate

** 'Sayrafa' rate

Among those currencies losing substantial ground in September was the Lebanese pound; or at least, the Sayrafa rate for the Lebanese pound, which ECA uses for its cost of living calculations, and which fell from USD 1 / LBP 27 200 to LBP 29 800. Not so the meaningless official rate, which remained fixed at USD 1 / LBP 1 507. However, perhaps not for much longer, as the government plans to massively devalue this rate to USD 1 / LBP 15 000 on 1 November. The new rate would be much closer to the fairer value offered by the black market (latest USD 1 / LBP 39 000) but still a long way short, although the move could be a useful step towards unifying exchange rates eventually. The only problem is that the plan must pass parliamentary scrutiny and that usually spells disaster for such reforms. We will report back whatever the outcome.

In other news, the Nigerian naira could be heading towards a major devaluation. Official and parallel exchange rates are diverging rapidly, with the former fixed at USD 1 / NGN 421 but the black market offering closer to NGN 700. An alarming shortage of dollars in the country, largely because of massive theft of oil from pipelines, which would otherwise be exported, means foreign companies are struggling to be able to repatriate revenues. Emirates Airlines, for instance, has suspended flights until the central bank releases some of its scarce reserves. However, it needs those reserves to defend the official exchange rate. Imported goods are becoming harder to find too, so prices are high when they are available.

Cuba, which engineered a massive devaluation only in August, might also soon need another one, as fixed official and black-market rates there too diverge.

Argentina has introduced yet another exchange rate, the so-called 'soy dollar', which joins six others in an ever-more-complex currency regime.

Meanwhile, in Libya, rival governments in the divided country are effectively supported by rival central banks, which seem to be setting different exchange rates for the Libyan dinar.

Despite the many headlines - not to mention questionable economics of the United Kingdom's latest government (it gets through quite a few these days!) - the British pound did not make our table of biggest currency fallers in September. Nevertheless, it took heavy damage (see below) following the announcement of dubious reforms, including uncosted tax cuts, only to rebound after some of the plan was scrapped and the Bank of England had stepped in to buy lots of public debt and reassure the markets. Further volatility is likely.

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