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Foreign trade alert! Top 10 currencies in the world with the biggest declines in 2021!

We do foreign trade know the truth: the appreciation of the local currency against the dollar is conducive to imports and unfavorable to exports; the depreciation of the local currency against the dollar is conducive to exports and unfavorable to imports.

When the local currency of an importing country suddenly depreciates significantly against the US dollar, the cost of importing for the customer will then escalate. Not to mention that if a country's currency continues to depreciate significantly, it will cause its domestic economic situation to deteriorate.

The following is a summary of the 10 currencies that will lose the most value against the US dollar in 2021.

NO.1  Turkish Lira

Turkish President Recep Tayyip Erdogan's current strategy is to transform Turkey into a manufacturing powerhouse with a cheaper lira. So he cut interest rates as countries raised them and fired a succession of central bank officials who refused to do so. As a result of his series of manoeuvres, in 2021, the lira lost 44% of its value against the dollar, almost decimating it.

Since the end of 2021 to date, the lira has fallen by another 8.8%. In order to curb high inflation, boost foreign exchange reserves and invigorate a weak currency, the Turkish government has its eye on gold in the hands of the population. The Turkish private sector also has a tradition of hoarding gold, so the Turkish government came up with this trick: from 1 March, the Turkish public will be able to deliver gold kept in their homes to the financial system through banks and jewellery shops.

The Turkish government estimates that the total amount of gold currently in the hands of the population is nearly 5,000 tonnes, equivalent to about $250 to $350 billion, which is considerable even if it is only partially used to back up foreign exchange reserves. But the Turkish resident said, "I personally don't want to participate at the moment, I still want to keep the gold myself."

It is also worth noting that Russia supplies more than half of Turkey's gas, plus Russian tourists have been a major source of income for Turkey. Under the Russia-Ukraine conflict, Turkey's inflation rate could rise to a 20-year high in February, with the consumer price index climbing for the ninth consecutive month to an annual 52.5%, compared to 48.7% in January.

NO.2  Argentine Peso

In 2021, the country's inflation rate exceeds 50%. Between 4 January 2021 and 5 January 2022, the Argentine peso ranks second among the 10 currencies that have fallen the most against the US dollar, with a depreciation of 17.85%.

Argentina's central bank has taken measures such as a sharp adjustment in short-term interest rates, strict foreign exchange management and refinancing of its debt through the International Monetary Fund, with the intention of stabilising the currency market and containing the fall of the peso.

In terms of import controls, Argentine Customs restricts requests for exchange of foreign currency to Argentine importers, requiring importers to complete customs entry of imported goods within 90 days of the exchange of foreign currency.

n addition, the Argentine Federal Tax Administration (AFIP) is tightening controls on foreign trade to avoid speculative operations, leading to new difficulties for traders and importers in making official dollar remittances.

NO.3  Chilean Peso

In 2021, the Chilean peso fell by as much as 16.88% against the US dollar. At the end of the year, policy instability due to the presidential election affected investor confidence, further weakening the Chilean peso, pushing up the cost of imports and increasing price inflation.

In order to curb inflation and stabilise the exchange rate, the Chilean Central Bank has raised interest rates several times in the last year. Since July 2021, the Central Bank of Chile has raised interest rates by a total of 500 basis points, including 25 basis points and 75 basis points on 15 July and 1 September respectively, and 125 basis points each on 19 October and 15 December, with a gradual increase in the rate hike.

However, as the Federal Reserve tightens monetary policy further and the US dollar enters a path of appreciation, the currencies of more financially open emerging economies like Chile could depreciate further.

NO.4  Colombian pesos

In 2021, the Colombian peso will depreciate by 15.90% against the US dollar, and the import trade will be severely affected, with the retail market facing a shortage of some imported goods and high prices.

In the medium to long term, the peso will continue to depreciate given the twin factors of the continued strong US dollar policy and the new round of presidential elections to be held in Colombia in 2022.

NO.5  Thai Baht

The Thai baht was the worst performing currency in Asia in 2021, falling from 30 baht per US dollar at the start of the year to 33 baht per US dollar at the end of the year. At the same time, the Chinese Yuan climbed against the Thai Baht and broke the 5.0 barrier, reaching as high as 5.3 at one point.

The devaluation of the Thai baht was due in large part to the economic downturn caused by the New Crown epidemic, which particularly hit the Thai economy, which is highly dependent on tourism, and forced the devaluation of the baht. This has led to a significant increase in the cost of imported goods and higher trade risks for Thailand.

The Federation of Thai Industries (FTI) Vice President Giang Gai said that the depreciation of the baht affects the higher price or cost of imports, especially capital goods, which have to be imported for equipment that is used to modify original machinery or to expand factory production lines to increase productivity. Transactions for which orders had previously been placed had to continue to be imported, but from now on, if the baht depreciates further and if freight costs remain high, imports of capital goods such as machinery and equipment may slow down and wait and see where the baht goes.

NO.6  Korean won

The Korean won is the second worst performing currency in Asia in 2021. The won has been under pressure over the last year as the US dollar has strengthened and the South Korean authorities have imposed a wide-ranging embargo to curb the rise in infection cases, with the won depreciating by up to around 4.8% since last August and the US dollar to won exchange rate breaching the important psychological mark of 1200 at one point.

The Bank of Korea decided on 14 January 2022 to raise its benchmark interest rate by 0.25 percentage points to 1.25% from the current 1%. This is the third consecutive interest rate hike in Korea since August 2021.

NO.7  Romanian lei

At the beginning of 2021, the exchange rate between the US dollar and the Romanian leu is 3.9, rising to 4.3 by the end of 2021.

It is worth noting that 93.5% of the nearly 2,600 companies surveyed recently by the Romanian National Council for Small and Medium-sized Enterprises said that the Russian-Ukrainian conflict would cause an economic crisis in Romania, even though most of them have no business relations with Russia and Ukraine.

NO.8  Saul, Peru

At the beginning of 2021, the US dollar was trading at 3.6 against the Peruvian sol, and at one point in late 2021, it broke the 4.0 barrier, setting new all-time highs throughout the year.

On 6 January 2022, Peru raised its benchmark interest rate to 3%, the sixth consecutive monthly rate increase.

NO.9  Forint, Hungary

The Hungarian economy has been in a bit of a mess over the last year, with the forint weakening and prices rising, and life after "forints for euros" has not been as good as it could have been.

Eastern European currencies have all been affected by the worsening situation in Russia and Ukraine, with the euro having risen by 7.5% against the forint and the US dollar by 13% against the forint since 24 February.

NO.10 Zloty, Poland

At the beginning of 2021, the USD-Polish zloty exchange rate was 3.7, rising to 4.0 by the end of the year.

On 4 January 2022, the Monetary Policy Committee of the Polish Central Bank announced an interest rate increase, raising the main interest rate by 50 basis points to 2.25%, marking the fourth consecutive month of interest rate increases and making it the first national bank to raise interest rates in 2022.

In March, the Polish zloty continued to depreciate as a result of the situation, falling to levels not seen in the last two decades against both the US dollar and the euro.
According to the analysis, the four emerging markets most at risk of a currency crisis in 2022 are: Egypt, Romania, Turkey and Sri Lanka.
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