There are only a handful of currencies that have appreciated against the US dollar (USD) since 2020, according to fDi calculations based on foreign exchange data for 94 countries.
The Covid-19 pandemic triggered a chain of events that wreaked havoc with currencies from developing countries: financial investors sought for shelter in US dollar-denominated securities; current account deficits ballooned; inflation rose sharply, particularly in the wake of the Ukraine war; and a global nearshoring push re-oriented foreign investors towards mature economies in the West.
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Only 11 of the 94 countries analysed bucked the trend and saw their local currencies strengthen relative to the dollar over the past three and a half years. This is based on comparisons of their average monthly value in USD in January 2020 and June 2023, or the latest month where figures are available on Haver Analytics, an economic data agglomeration platform.
A country’s exchange rate with the USD, the world’s reserve currency, heavily impacts its current account and international competitiveness. The USD is widely used in international trade and finance, and is the most common foreign currency held as reserves by central banks.
The Armenian dram (AMD) has been the best performing currency against the US dollar since 2020 with an appreciation of 23.9% to $0.00259. In June 2023, it cost an average of 386.67 AMD to buy one dollar, down from the 481.27 AMD needed three and half years earlier.
The AMD has strengthened in the wake of the Ukraine war, which led multinationals with operations in Russia to set up offices in Armenia and brought an influx of Russian émigrés and their savings. Inflows of foreign direct investment (FDI) and an increase in the value of Armenia’s copper exports amid higher copper prices have also helped shore up the AMD’s value. The move in 2022 to begin paying for Russian natural gas in rubles, rather than dollars, has also had an effect on the dram as it freed up dollar reserves to sustain the exchange rate.
The second best-performing global currency relative to the USD was Albania’s lek, which appreciated by over 11% in the period. Strong inflows of FDI and a tourism boom have helped maintain demand for the lek and bolstered its value against the USD.
The Georgian lari came in third with an appreciation of 10.1% against USD in the same period. Georgia was one of the best-performing countries in terms of FDI attraction relative to the size of its economy last year. Similar to other countries neighbouring Russia, Georgia’s currency has strengthened due to an influx of refugees and their savings.
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In fourth was Mexico’s peso, which increased in value by 8.8% in the period. The peso has also been bolstered by demand from record inward FDI as multinationals build out their North American supply chains and Mexico emerges as a clear winner of the US administration’s nearshoring push. The country’s central bank also supported the ‘super peso’ as it aggressively hiked interest rates over the past two years to an all-time high of 11.25%.
Just six of the 94 countries within this analysis have maintained their peg with the US dollar throughout the period of analysis, including Azerbaijan ($0.59), Jordan ($1.41), Qatar ($0.275) and Saudi Arabia ($0.267). In the case of some countries, including Bolivia, the fixed exchange rate regime has significantly depleted their reserves of US dollars.
The vast majority of countries (77 out of 94) have seen their currencies lose value against the US dollar since 2020. The worst-performing country was Venezuela (–99.6%), where hyperinflation sank the bolivar’s value and prompted the government to introduce a new denomination its currency in October 2021.
Lebanon, which has faced a financial meltdown since October 2019, decided last year to re-peg its currency to the US dollar (from L£1,507 to L£15,000) for the first time in 25 years. This effectively resulted in a 90% depreciation of the Lebanese pound.