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September currency review

Although the long-term impact of corruption on a currency's value is impossible to calculate, it seems obvious that foreign investors might think twice before pumping money into a persistently corrupt country, for fear it might not be put to good use. Less investment means less demand for a country's currency, making it more likely to weaken over time.

Similar considerations apply to international aid. After all, what is the point donating funds to help a country's poor if the money just ends up in the hands of corrupt officials?

On 18 September, the governments of Ireland, Finland, Sweden and the United Kingdom decided that, in the case of Zambia, there was indeed little point, as it came to light that $4m they had donated to a social welfare fund there had gone missing. So, aid was suspended.

That move alone, because of the substantial amounts of aid involved, would have shaken the kwacha, but having come a week after the IMF stopped lending to Zambia, warning of the unsustainability of its government debts, it produced a much more serious exchange-rate depreciation. Consequently, Zambia's currency was the world's weakest during September (see first table below).

The trouble for international donors is that corruption is extremely difficult to root out and many countries have neither the resources nor expertise to do it successfully. Zambia will probably make some highly visible but token efforts to persuade foreign governments it is doing its best and at some point they will have little option but to relent, because the alternative would mean neglecting the poor completely. However, the corruption will persist, as it does in so many countries, deterring private investors at least, and weakening currencies, for decades to come.

Countries experiencing largest currency losses in September
Country
Currency code Movement v EUR
3 Sep - 1 Oct 2018 (%)
Inflation
(%)
Angola AOA -6 19.0
Argentina ARS -6 34.4
Sri Lanka LKR -5 2.5
Zambia ZMW -19 8.1

The slide in the Argentinian peso continued in September. Austerity measures had seemed to have halted the currency's decline, but then the central bank chief, Luis Caputo, resigned on 25 September, apparently for personal reasons, and the peso lost another 5% overnight. It then stabilised after the IMF agreed to extend its bail-out for Argentina.

Interestingly, given Zambia's news above, among the strongest currencies this month was the South African rand, which recovered ground after President Ramaphosa announced a raft of reforms including several aimed at combating corruption. Other measures include shifting spending towards infrastructure renewal and liberalisation of regulations in the hope of attracting foreign investment in growth sectors like mining and tourism.

The currency which gained the most in September, however, was the Turkish lira, after the central bank hiked interest rates by more than six percentage points to 24% in an effort to stem rising inflation and halt the currency's recent slump. Unpopular austerity measures also became unavoidable, as President Erdogan came to realise that his now almost complete control of Turkey's government did not extend to international markets.

Countries experiencing largest currency gains in September
Country
Currency code Movement v EUR
3 Sep - 1 Oct 2018 (%)
Inflation
(%)
Lesotho LSL +4 4.7
Namibia NAD +4 4.4
Russia RUB +4 3.1
South Africa ZAR +4 4.9
Swaziland SZL +4 4.9
Turkey TRY +9 17.9

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

Selected currency movements (v EUR)
Country Currency code % movement to 1 October 2018 v EUR since: Latest official annual inflation (%)
    3/9/18
(1 month)
2/7/18
(3 months)
2/4/18
(6 months)
2/10/17
(12 months)
 
Argentina ARS -6 -31 -48 -56 34.4
Australia AUD 0 -2 0 -7 2.1
Brazil BRL +3 -4 -15 -25 4.2
Canada CAD +1 +2 +5 -3 2.8
Chile CLP +3 -1 -3 -2 2.6
China CNY 0 -4 -3 -2 2.3
Egypt EGP 0 0 +4 0 14.2
India INR -2 -5 -5 -9 3.7
Indonesia IDR -1 -4 -2 -9 3.2
Japan JPY -2 -2 -1 +1 0.9
Kenya KES 0 0 +6 +4 4
Korea Republic KRW +1 +1 +1 +5 1.4
Mexico MXN +2 +5 +3 -2 4.8
Nigeria NGN 0 0 +5 0 11.7
Norway NOK +3 0 +2 -1 3.4
Philippines PHP -1 -1 +2 -5 6.3
Poland PLN +1 +2 -2 +1 2
Russia RUB +4 -4 -8 -12 3.1
Singapore SGD 0 0 +2 +1 0.7
South Africa ZAR +4 -3 -13 -3 4.9
Sweden SEK +3 +1 0 -7 2
Switzerland CHF -1 +2 +3 +1 1.2
Turkey TRY +9 -23 -30 -40 17.9
United Kingdom GBP +1 0 -1 -1 2.7
United States of America USD 0 0 +6 +2 2.7
Venezuela VEF -2 -99 -99 -99 200000
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