Currency Volatility Tracker

Arab Triangle Sets Pace for Currency Volatility

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The Sudanese pound (shown above) was the world's most volatile in the opening quarter of 2021 falling 588% against the U.S. dollar.

The Arab nations of Sudan, Libya and Syria formed a devaluation triangle stretching from the heart of the middle east to north central Africa.

Three nations with thinly-traded currencies that were remarkably stable at the outset of the coronavirus pandemic last year have suddenly undergone severe devaluations to create a whirlwind of volatility in what was an otherwise normal opening quarter, according to the latest data from the Currency Volatility Index (CVI). 

Global currency volatility reached 1.88% in the opening quarter of 2021, the highest level since the first quarter last year, as the currencies of Sudan, Libya and Syria underwent significant devaluations to start the new year after making it through 2020 relatively unscathed with the exception of Sudan, which lost 22.5% of its value last year.  The first quarter marked only the fifth time since 2014 that quarterly volatility has exceeded 1.8%. 

Losing Value

Currency devaluations are sonic boom events in the currency world because they represent a massive and sudden correction between the official government rate of a currency and the true market rate.  Often, the adjustment involves a reconcilation with a black market that has developed as the result of a wide gap between the official currency value and the street value.  If the gap persists or widens, the country's central bank is eventually forced to devalue the currency to the actual market rate. 

"Currency devalutions are not that common with one occuring about every two years," said John Bassford, senior currency analyst at CreditPulse.  "It is very unusual to have three in one quarter, which leads me to believe they were Covid-related.  The last currency devaluation took place in 2018 in Venezuela when the Maduro government abandoned its currency tier and allowed the bolivar to float."

A perfect example of a country with a thriving black market currency is Argentina.  The current official rate is 91.61 pesos to the dollar as of April 2nd, which is low enough, but the black market rate is much lower at approximately 140 pesos to the dollar, according to information obtained by CreditPulse.  In addition to Argentina, Lebanon and Nigeria are two other countries with currency black markets. 

Terrorist Triangle

Sudan's currency, the pound, fell 580% in one week going from a value of 55.14 to the dollar the week of February 19th to the black market value of 375.11 to the dollar the following week.  Libya's dinar went from 1.338 to 4.448 in one week in January and Syria's pound went from a range of 512 to 515, where it had traded since July 2017, to value of 1258 in March, a devaluation of 145%. 

This marks the third devalution since 2018 for Sudan, a country that has been mired in a long economic crisis.  In January 2018, the pound was valued at 7.28 to the dollar.  The Sudanese government was pressured into this latest devaluation by the International Monetary Fund (IMF) and other foreign doners in order to access much needed debt relief.  The devaluation will likely eliminate smuggling and speculation in the pound, but it will severly reduce the purchasing power of the people.

All three Arab nations have struggled with various forms of Islamic and international terrorism, which has weighed heavily on their economies due to economic sanctions.  Syria is currently on the U.S. State Department's list of state sponsors of terrorism, along with Iran, Cuba and North Korea.  Sudan, which was put on the list in 1993, was removed by the Trump Administration in 2020.  Libya is not considered a state sponsor of terrorism, but is home to a number of terrorist groups including ISIS and one that killed a U.S. Ambassador in September 2012 in Benghazi. 

Nepal and Venezuela joined the Arab volatility triangle as the only other countries with double-digit currency volatility rates (see nearby chart).  Mauritania, another north African nation with a heavy Arab influence, saw its currency jump almost 6% against the dollar to become the world's seventh most volatile currency at 3.79%. 

Mozambique was the only sub-Saharan African nation to be among the top ten, the first time since the fourth quarter of 2018 that has happened, and a rare occurence since the currencies of those nations are typically the most volatile in the world.  Africa's largest oil exporter, Angola, just missed the top ten with a volatility rate of 2.34%. 

Myanmar's currency, the kyat, has suffered as the result of a military coup in that took place in that country on February 1st after the party backed by the military lost the country's election in November.  The country, formerly known as Burma, was controlled by the military for decades until the election of Aung Sun Suu Kyi in 2015, but has been unable under her leadership to fully transition to democracy.

Unsafe Safe Havens?

Switzerland and Japan had the two most volatile currencies in the developed world with CVI rankings of 15th and 16th respectively.  In an interesting development, the Swiss franc, which is stronger than the dollar, fell 6.5% against a U.S. dollar that rose 3%.  Like the dollar, the franc is considered a safe-haven currency in difficult times.

Meanwhile, the Japanese yen, another safe-haven currency, fell 7.16% against the dollar to finish the quarter trading at 110 to the dollar.  The yen started the year trading at 103.3 to the dollar.  The yen's movement is a stark reversal from last year when the currency rose 4.84% against a dollar that declined 5% among the world's major currencies.

The entire Currency Volatility Index (CVI) is available to subscribers upon request.
Written by John Bassford, senior currency analyst