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February currency review

When a country devalues its currency by as much as Sudan did in February (84%), you might expect to soon see inflation leap higher as import costs rise. For instance, when Sudan devalued by a mere 63% in January 2018, annual inflation doubled from 25% to 52% in just the month following and continued to soar thereafter. However, such a jump in inflation is not inevitable and in Sudan's case this time, it may well be avoided.

Any rise in inflation following a devaluation will obviously come mostly from higher import costs, as importers need to hand over more of the local currency in exchange for hard currencies, mainly US dollars, to buy goods in. However, if importers have already been accessing dollars at similar rates to the newly devalued one, there shouldn't be much change and, indeed, that is what has been happening in Sudan. 

Shortages of hard currencies available through banks and official channels, as the economy has continued to spiral through its long crisis, have meant importers have had no option but to go to the black market to get the dollars and euros they need - and exchange rates on the black market have been around the central bank's newly devalued official rate of USD 1 / SDG 375 (previously SDG 55) for many months. Therefore, in the short term, import prices are unlikely to change much.

What happens in the medium and longer terms depends on whether the central bank of Sudan's new "flexible managed float" regime allows the pound to keep pace with market sentiment - "flexible" and "float" sound encouraging; "managed" less so. If it does, and fair-value exchange rates are available through legal sources, the black market may largely disappear. Even if illicit exchange doesn't end completely, the at-least-temporary unification of exchange rates will remove many imbalances from the economy and hopefully stimulate export production to increase, which should reduce shortages of hard currencies and make the black market even less attractive. Such efforts will be helped by greater foreign aid and debt relief, which the exchange-rate reform has now unlocked. With a bit of luck, Sudan may be able to look forward to a brighter future as the economy stabilises, without having to suffer from even higher inflation.

However, such a situation could cause issues for global mobility teams managing expatriate staff in, or from, Sudan. When inflation does rise following a devaluation, higher prices at least partly offset the exchange-rate effect, whereby greater amounts of local currency can be obtained for the same amounts of other currencies, so reducing the pay adjustment necessary to maintain purchasing power. Problems can arise when the local currency devalues significantly without this offsetting rise in prices, because it can require a big negative adjustment to cost of living allowances for foreign staff in the country. On the other hand, expats from Sudan working elsewhere may need substantial uplifts if paid even partially in their home currency. The timing of pay reviews can add to or temper the impact, which is why consistent application over time of ECA's suggested cost-of-living adjustments can be so important. As always, if you need assistance managing your assignees in Sudan, or anywhere else, please do get in touch.

Countries experiencing largest currency losses in February


Currency code Movement v EUR
1 Feb - 1 Mar 2021 (%)
Argentina ARS -3 38.5
Jamaica JMD -3 4.6
Mexico MXN -3 3.5
Myanmar MMK -6 1.0
Sudan SDG -84 304.3

Libya's recent devaluation of 70% against the dollar, which we reported in December but which actually took place in January, was also an attempt to unify divergent black-market and official exchange rates. It has reportedly helped to ease a liquidity crisis there, but until the war-torn economy recovers to a much greater degree, allowing oil production and exports to bounce back, shortages of hard currencies are likely to persist and the black market will continue to thrive. Still, with the ceasefire holding and a new political agreement establishing a unity government, there is hope for better things here too.

In Zimbabwe meanwhile, authorities are also trying to kill the black market. That they have not quite managed to do so, despite the official exchange rate against the US dollar having been devalued by 79% in the last 12 months, is also due to foreign-currency shortages in what is a seriously dysfunctional economy still. The central bank only makes dollars available through a weekly auction system, and although it seems to reflect market sentiment to a large degree, nevertheless exchange rates available by auction (latest USD 1 / ZWL 84) are significantly different from those offered on the black market (latest ZWL 100). However, with official annual inflation having fallen from 837% in July 2020 to 'only' 322% to end-February 2021, there are signs of, at least, stabilisation in Zimbabwe; to call them 'hope' might be too much for an economy that has been in relentless crisis for nearly two decades.

Incidentally, OANDA, XE and other conversion sites show an exchange rate for the Zimbabwean dollar of USD 1 / ZWL (or ZWD) 361.9, which has caused confusion among some of our clients. However, this is a defunct rate from 2009, when the local currency was abandoned (as almost worthless) and which was the last time the country had an official ISO code for its currency. Although we've used ZWL in this blog post, this is only a shorthand abbreviation as the Zimbabwean dollar has never been officially launched on international markets since it was re-instituted by the government on 24 June 2019.

Countries experiencing largest currency gains in February


Currency code Movement v EUR
1 Feb - 1 Mar 2021 (%)
Paraguay MGA +5 2.6

Only one currency, the Paraguayan guarani, gained more than 2% against the euro in February, as the table above shows. The world's strongest currency during the month, the guarani has benefitted from the government's excellent Covid-19 response and increased public spending to boost the recovery.

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

Selected currency movements (v EUR)
Country Currency code % movement to 1 March 2021 v EUR since: Latest official annual inflation (%)
(1 month)
(3 months)
(6 months)
(12 months)
Argentina ARS -3 -11 -19 -37 38.5
Australia AUD +2 +4 +4 +8 0.9
Brazil BRL -2 -6 -3 -26 4.6
Canada CAD +1 +1 +1 -4 1
Chile CLP +2 +5 +6 +3 3
China CNY 0 0 +4 -2 -0.3
Egypt EGP 0 -2 -1 -10 4.3
India INR -1 -1 -2 -11 4.1
Indonesia IDR -2 -3 0 -9 1.6
Japan JPY -2 -4 -3 -8 -0.6
Kenya KES 0 -1 -4 -15 5.7
Korea Republic KRW -1 -3 +3 -2 0.6
Mexico MXN -3 -6 +3 -14 3.5
Nigeria NGN 0 -2 0 -13 17
Norway NOK 0 +2 +1 0 2.5
Philippines PHP -1 -3 -3 -5 4.2
Poland PLN 0 -1 -3 -4 2.7
Russia RUB +2 0 -2 -17 5.2
Singapore SGD 0 -1 0 -5 0
South Africa ZAR +1 0 +8 -6 3.1
Sweden SEK 0 0 +1 +5 1.6
Switzerland CHF -2 -2 -2 -3 -0.5
Turkey TRY -1 +4 -3 -23 15
United Kingdom GBP +2 +3 +3 -1 0.7
United States of America USD 0 -2 -2 -9 1.4
Venezuela VES -2 -47 -84 -96 2665.4
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