General

The exchange rate of Pakistani rupee against the U.S. dollar hits a record low

Pakistan’s “Dawn” and other media reported on September 15 that recently, the Pakistani rupee has continued to depreciate. On September 14, the exchange rate of the Pakistani rupee against the U.S. dollar hit a record low, with 1 U.S. dollar being exchanged for 168.94 rupees, which severely affected the confidence of the market and investors.

The Pakistani rupee has always been known as the worst-performing currency in Asia. In the past year, the depreciation rate has repeatedly broken through the line. On August 26 last year, 1 U.S. dollar exchanged for rupee as high as 168.43. Since then, the rupee has gradually adjusted back. The exchange rate reached its highest point on May 14 this year. 1 U.S. dollar was 151.83 rupees, which has continued to fall since June. Insiders in the banking industry believe that "the U.S. dollar still has room for further appreciation in the coming weeks and months."

The depreciation of the rupee has led to high cost of imported goods, and Pakistan's imports in the 2021 fiscal year (2020.07-2021.06) amounted to 54 billion U.S. dollars. Currency devaluation indirectly pushed up the inflation rate, and domestic prices rose sharply.

The market believes that the continued depreciation of the Pakistani rupee against the U.S. dollar is mainly due to the following reasons:

1. The market predicts that the economy will recover, business transactions will become more active, import costs will increase, and the trade deficit will increase. The current account deficit may account for 2%-3% of GDP.

2. After the Afghan Taliban came to power, the United States froze nearly 10 billion U.S. dollars in assets of the Afghan Central Bank in the United States and stopped sending cash to Afghanistan. The Atta government was in a hurry. The government and people rushed to buy U.S. dollars from Pakistan through various channels, which greatly increased the demand for U.S. dollars.

3. The government bonds will expire on September 30. Investors want to convert the realised rupee into U.S. dollars, which will also increase the demand for U.S. dollars.

In order to prevent the continued depreciation of the Pakistani rupee, it is reported that the State Bank of Pakistan (SBP) has injected 1.2 billion U.S. dollars into the foreign exchange market from mid-June to the first week of September this year. This is clearly at odds with the foreign exchange policy of the International Monetary Fund (IMF), the Ministry of Finance of Pakistan and the Central Bank of Pakistan that claim that the value of the rupee should be determined by the market. Facts have also proved that the expansionary monetary policy implemented by Pakistan still cannot prevent the devaluation of the rupee. A study by the Asian Development Bank stated that due to the structural defects in Pakistan’s economy that cannot be repaired, once GDP growth exceeds 3.7%, it is prone to a balance of payments crisis. Pakistan’s imports in July and August reached 12.1 billion U.S. dollars. The trade deficit of US$7.5 billion (a year-on-year increase of 1.2 times) is a record high.

On September 14, Pakistani Finance Minister Tallinn said that Pakistan’s trade deficit will continue to increase, but it is currently manageable and there is no need to worry. If the economy is overheating, the government will make appropriate “adjustments”.

Myanmar's exchange rate fell below historical records!

On September 5, local time, the Myanmar foreign exchange market kyat-to-dollar exchange rate fell to 1,860 kyats to 1 U.S. dollar, another record low.

On September 3, the Central Bank of Myanmar issued an announcement stating that Myanmar exporters were required to sell U.S. dollars in their accounts to Myanmar banks that have the right to operate foreign exchange at market prices within 4 months. This policy further affected the Kyat market. exchange rate.

On August 16, Myanmar's multiple currency exchange points listed the actual transaction prices of 1,775 kyats to 1 U.S. dollar to 1,790 kyats to 1 U.S. dollar. This is also after the kyat exchange rate broke 1,700 kyats to 1 U.S. dollar in May this year. The lowest record set in history.

Since February this year, the exchange rate of the kyat against the US dollar has continued to fall after 1,330 kyats converted to 1 US dollar. The Central Bank of Myanmar has put more than 120 million U.S. dollars into the market in more than 30 times to balance the exchange rate, but it is still difficult to curb the downward trend of the kyat.

Reasons for the continued decline in the exchange rate

Judging from the collapse of this event, the domestic factors of the Burmese currency cannot be excused.

First of all, some foreign-funded companies in the country believed in the wrong market rumors, converted kyats into U.S. dollars and transferred these U.S. dollar assets overseas. This greatly impacted Myanmar’s financial system and caused the kyat exchange rate to plummet. .

Secondly, on September 3 this year, the Central Bank of Myanmar issued a mandatory foreign exchange purchase order, which requires exporters of the country to sell the foreign exchange surplus in their accounts to eligible banks at market prices within 4 months. As soon as the mandatory foreign exchange purchase order was issued, the exchange rate of the kyat fell sharply, further exacerbating the depreciation of the kyat.

From a deeper perspective, the reasons for the decline in the kyat exchange rate come from multiple sources.

1. The coup

It is reported that on February 1 this year, the political situation in Myanmar changed, and then many bank staff went on strike and staged protests. As a result, nearly 2,000 private bank branches in the country were closed and stopped working. Many factories were unable to pay for goods or pay workers’ wages. .

This series of chain reactions have had a huge impact on Myanmar's economic development, and inadvertently formed the necessary conditions for the decline of the kyat exchange rate.

As a result, since February this year, the exchange rate of the kyat against the US dollar has continued to fall after 1,330 kyats have been converted to 1 US dollar. As of April 29, 80% of the staff had returned to work.

Although the bank has resumed operations, it has not solved the plight of the people. The bank has limited withdrawal limits for individuals and companies, which has intensified the contradiction between Myanmar nationals.

2. Epidemic

In terms of the epidemic, according to data from the Myanmar Ministry of Health, since June this year, the number of infected cases in Myanmar has increased sharply.

Myanmar state media previously reported that the Myanmar military is seeking international assistance to curb the spread of the new crown virus, and the United Nations has warned that the new crown epidemic in Myanmar is "severe".

To control the spread of the new crown pneumonia epidemic, Myanmar will close all banks, offices, and schools. But initially, in order not to interrupt the circulation of other commodities such as medical supplies, the government chose not to close the banks. However, as the epidemic continued to spread, the central bank and the staff of the banks were infected with the new crown virus. Therefore, all the banks were closed.

Due to the bank’s closure, the foreign exchange rate on the official website of the Bank of Myanmar kept 1,650 kyats to 1 U.S. dollar, but the actual market exchange rate has broken down to 1,700 kyats to 1 U.S. dollar, and it quickly approached 1,800 kyats to 1 U.S. dollar in the past two days!

3. The U.S. releases water

Since 2020, in order to prevent its own economic regression, the United States has resolutely moved out of the money printing machine, printing money while releasing water to the market. A large amount of US dollars has poured into the international market, and many countries are struggling to survive in this inflationary flood.

After eight countries, including Brazil, the Czech Republic, Russia, and South Korea, "unable to withstand" announcing interest rate hikes to combat inflation, Myanmar also appeared as the ninth "victim".

It is worth mentioning that, due to the limited level of economic development in Myanmar, the country’s foreign exchange reserves are not enough to withstand this financial torrent. However, based on the current situation, this 1.2 US dollar is just a drop in the bucket, and it still cannot contain the kyat's plummet.

What is the impact of the continued decline?

The Economist Intelligence Unit (EIU) report pointed out that in the medium term, Myanmar’s continued weak economic fundamentals, including high annual inflation and current account deficits, will exert devaluation pressure on the kyat during the forecast period, and the exchange rate of the kyat against the dollar will accelerate. Weakened.

The ability of the Bank of Myanmar to further intervene in the foreign exchange market may be limited.

The EIU report stated that with the expansion of Myanmar’s budget deficit, at the request of the military government, the Central Bank of Myanmar will play a greater role by further increasing the monetary base and purchasing bonds to finance the country’s debt. However, Myanmar’s international reserves are insufficient. The underdeveloped debt market in Shanghai will limit the ability of the Myanmar Central Bank to further intervene in the market.

Domestic demand in Myanmar will shrink, and it is expected that the shortage of essential goods caused by the interruption of domestic and international transportation will significantly push up prices in 2021.

"Global Shin Kong Daily" analyzed that the decline in the exchange rate is beneficial to exports, but it will raise the price level in Myanmar's domestic market.

As the oldest oil and gas industrial country in the world, Myanmar is rich in oil resources. With the rise in global oil costs, rising fuel prices will further boost consumer prices. Looking ahead, if the military government mismanages the economy, it will undermine Myanmar's long-term growth potential.

Sri Lanka runs out of foreign exchange and enters a state of emergency!

Previously, the epidemic continued to impact the economy, and later, the United States released a large amount of money printing, which caused inflation in many countries around the world. Sri Lanka’s economy has been in a severe recession, and the road to economic recovery does not seem to be easy under repeated and difficult epidemics.

As the government is facing a severe financial crisis, the Sri Lankan government has decided to strictly limit state spending. Finance Minister Basil Rajapaksa told the cabinet that due to the severe economic crisis caused by the new crown epidemic, the country's income has fallen sharply, and even current expenditures are not enough.

Serious economic crisis, implement emergency control

The Minister of Finance of Sri Lanka informed the Cabinet that due to vaccinations, additional expenditures from the health sector and the provision of relief allowances, current expenditures this year may exceed the estimated amount.

The Ministry of Finance has instructed the secretaries of various ministries and commissions to suspend projects such as building construction and building renovations, which have not started despite funding. The government also decided to suspend recruitment for all state services.

The Ministry of Finance also notified the secretaries of various departments to submit a detailed report describing the money that can be saved by restricting expenditures.

On August 31, local time, as domestic private banks ran out of foreign exchange needed for imports, Sri Lanka declared a state of emergency due to food shortages.

According to Agence France-Presse, Sri Lanka is currently experiencing a serious economic crisis. President Gotabaya Rajapaksa said that emergency regulations have been enacted to prohibit the hoarding of sugar, rice and other essential foods.

Rajapaksa also appointed a senior military officer to serve as the "Basic Services Commissioner" responsible for coordinating the supply of rice, sugar and other consumer goods.

This decision was made to prevent basic commodities such as rice, rice and sugar from being sold at high prices and stockpiling.

Prior to this, the prices of foods such as sugar, rice, onions and potatoes in Sri Lanka had risen sharply, and due to the shortage of powdered milk, kerosene and gas, long queues had already formed outside the shops.

The picture below shows the rising trend of prices in Sri Lanka:

At the same time, Sri Lanka’s Energy Minister Udaya Gammanpila called on drivers to save fuel so that the country can use the saved foreign exchange to purchase essential medicines and vaccines.

The rupee depreciates further against the U.S. dollar

Sri Lanka’s Finance Minister S.R. Attygalle said that Sri Lanka’s foreign exchange reserves have been strengthened due to an inflow of US$787 million from the International Monetary Fund (IMF) and a swap arrangement of US$150 million from the Central Bank of Bangladesh.

According to the Central Bank of Sri Lanka, the Sri Lankan rupee further depreciated against the U.S. dollar, and the latter’s selling exchange rate reached an all-time high of 204.89 rupees.

As of the end of July 2021, Sri Lanka’s foreign exchange reserves have fallen to US$2.8 billion (approximately RMB 18.1 billion). In November 2019, when Sri Lanka’s current government came to power, Sri Lanka’s foreign exchange reserves were US$7.5 billion (approximately 48.5 billion yuan).

Compared with that time, the exchange rate of the Sri Lankan rupee against the US dollar has also fallen by more than 20%. The Central Bank of Sri Lanka has raised interest rates in an attempt to boost the rupee.

In March last year, in order to save foreign exchange, the Sri Lankan government announced that it would ban the import of automobiles, cooking oil, and turmeric root powder, which is indispensable in local cooking. However, importers still stated that they could not obtain enough US dollars to buy food that was allowed to be imported. And medicines.

It is reported that due to the impact of the epidemic, Sri Lanka's economy will shrink by 3.6% in 2020, a record.

Finally, I remind friends who have shipping plans in the near future to be sure to collect money first, and beware of running out of money and goods!