Not just India, its Brazil, South Africa, Turkey, Indonesia…… As the world gets ready towards instability in the Middle East combined with a possible military action in Syria, newly emerging economies from all over are facing a decline in their currency. From Brazil to South Africa, and from India to Indonesia, the decline in currency values is now reverberating all across the world. The South African Rand is now on a four-year low and the South African Finance Minister Pravin Gordhan says that it has “gone too far.” This year alone, the Rand fell by 20 per cent, which fuelled inflation fears coupled with a hope of better exports. From around 8 Rand to a dollar, it jumped to over 10, which send shock waves in the country. Like India, fuel prices are matter a lot to South Africa, since their energy sector is highly dependent on imports. For South Africa, business confidence has plummeted not only due to the fall in the currency, but also due to the miner’s strike. Turkey also faced a major weakening of their currency with the Lira falling below 2 to a dollar for the first time. As this happened the country waited for the Central Bank Governor to intervene, hoping for governmental intervention. The story was repeated in Brazil, where the real crossed 2.4 to a dollar compared to less than 2 about six months ago. The real hass lost over 40 per cent of its value compared to the dollar in the past two years, and the decline in the past six months has been almost 19 per cent. On the other hand, the Venezuelan bolívar has suffered the biggest loss in Latin America, even more than the Brazilian real. Fluctuations in the bolívar were also also caused by the death of Hugo Chavez. Further, serious trouble continues for the Argentinean peso whose devaluation touched 30 per cent last year. In Asia, besides the Indian Rupee and the Turkish Lira, the major focus has been the Indonesian Rupiah that reached its four-year low of 11,000 per dollar. Besides a weak Rupiah, the country’s trade deficit also reached $2.3 billion, the highest during the past four years. The normally resilient economy in Thailand faced a major test when the country faced its first two consecutive quarters of low growth. Thailand faced a currency account deficit of $5.1 billion in the second quarter down from a surplus of $1.3 billion in the first quarter of 2013. Though the fluctuation in the Thai Baht has been relatively less severe, the government is under immense pressure from the exporters lobby to reduce the value of the Baht to facilitate more exports. Amidst this background, the decline in Indian currency does not come as that big a surprise as it is often made out in the Indian media. Surprisingly, while the volatile nature of the international market is impacting the value of the Indian Rupee, the media discourse in India is often inward-looking with a focus on internal issues rather than on global causes leading to the decline. The decline in the value of currencies of newly emerging economies is related and the links point towards US Treasury announcements made at the beginning of the year. And if the situation in the Middle East escalates and the US military and some of its allies engage with Syria, two things need to be watched – oil prices and the dollar rate!
Posted on: Wed, 04 Sep 2013 08:59:24 +0000
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