The winners and losers from recent global currency collapse

It is that time of a financial cycle when currencies all over the place start falling in value. Yes, global currencies are crashing… again! The (un)fortunate news, however, is that every financial event always has a winner and a not-so-lucky loser. Here we identify parties to fall on either side of that divide.

The evidence is there for all to see. Earlier this year, both the Russian ruble and Mexican peso recorded their lowest ever exchange rates against the US dollar. Similarly, countries such as Argentina, Colombia, and even Brazil have all crumbled at least 28 per cent one time or another over the last 12 months. Elsewhere, Europe and Africa have not been spared either, with the Turkish Lira and South African Rand all falling by double digits over the same time period.

As economies go, greatly weakened currencies point to an economic slowdowns, a case in point being China whose 2015 annual growth was the worst to be posted in the last 25 years. On the other hand, Brazil is presently wading its way through their longest recession to be experienced since the 1930s.

As noted above, such significant shifts in major global currencies bring along various created opportunities and challenges. In fact, when a given currency falls in value, the country’s exports become cheaper hence more attractive to foreign buyers. On the other hand, its imports become more expensive. This induces the locals to purchase more of their local-made products such that certain countries and companies benefit while the rest lose from such economic downturns.

The Winners and Losers

The list of winners may not be as long as we’d all want to be. In most cases, however, winners would include travel agencies, retail stores, multinational corporations, and other countries and producers operating in higher valued currencies with the rest losing out.

For instance, Americans planning to tour other countries stand to benefit from this collapse if they visit a country with greatly devalued currencies. This is because their single dollar is now worth more than it could have been under ordinary circumstances.

Similarly, multinational corporations with huge imports are benefiting greatly, but only if they operate in higher valued currency countries. for example, American firms such as Walmart with huge imports is a real winner in such poor economic environment. On the other hand, multinational is lesser currency areas which largely rely on their imports are losing out on a large extent.

There are countries recording outright winners. These include countries with such characteristics as having large exports of manufactured products instead of raw commodities e.g. oil, those with not-so-high amounts of foreign debt or rising inflation and those that are politically stable.

Such countries include South Korea, Vietnam, Mexico, and Taiwan among others. With the Peso at an all-time low, Mexico is probably one of the main beneficiaries of this economic tantrum thanks to its significantly strong manufacturing sector.

For counties with soaring international debts, the situation is very different. For such countries, having your currency devalued is a real nightmare. Countries such as Kenya, Turkey, Russia and Senegal find themselves in this group of losers, because most have their foreign debt standing at an unhealthily close proximity to half their economic sizes.

In particular, Turkey’s sizable manufacturing sector is not enough to protect it from such loses, due to the fact that its foreign debt amount is almost half of its economy. This pales to the 22 per cent ratio of Mexico’s foreign debt to its economic size according to the audit report by PWC.

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