In June 2024, the largest factors contributing to changes in exchange rates were politics, the availability of goods, and debt restructuring. Russia’s currency strengthened despite new U.S. sanctions. Colombia and Mexico both faced major devaluations following political shifts. Ghana’s currency continues to lose value amidst efforts to restructure debt and obtain assistance from the International Monetary Fund.
Up until recently, Russia has been using the ruble’s exchange rate with the U.S. dollar as the benchmark used to set all other exchange rates with the ruble. This is quite common as the U.S. dollar is the world’s de facto reserve currency, and most countries benchmark their currency against either the U.S. dollar, the Euro, or the British pound. However, Russia’s relationship with the United States has grown increasingly contentious in recent years, mostly due to the war in Ukraine. The U.S. has implemented significant sanctions with the goal of making it more difficult for Russia to procure war supplies. In response, Russia has decided to switch their exchange rate benchmark to the Chinese yuan, both as a rejection of U.S. power and an attempt to minimize the impact of those sanctions. Russia has also strengthened its diplomatic ties with both China and India as it has become increasingly isolated from the West. The recent switch to benchmarking against the Chinese yuan has resulted in a stronger presence of the ruble in trade transactions and, for the time being (at least), strengthened the currency.
The Colombian peso is facing a large devaluation after President Petro implemented a reform requiring workers to contribute money to a public pension fund. Although this reform is intended to increase pension support for the elderly, the result thus far is a lack of confidence in the peso. In turn, investors are letting go of Colombian assets as they watch the fiscal deficit grow larger.
The Ghanian cedi has continued to lose value against the U.S. dollar this month, which can largely be attributed to the decrease in cocoa revenue. However, the country has been able to maintain a consistent interest rate. Like last month, the country is focused on restructuring its debt and slowing inflation to secure support from the International Monetary Fund which would provide protection for the cedi.
Following Mexican elections in the beginning of June, the Mexican peso became one of the worst performing currencies worldwide within the span of days. Potential amendments to the constitution have resulted in increased concern from investors. More recently, the volatility seen in the peso is subsiding. This change comes after money managers made significant strategic changes to help stabilize the peso.
How do currency changes affect compensation?
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