During August, several currencies experienced notable movements driven by changing economic conditions, investment flows, and foreign exchange pressures.
The Korean won strengthened as strong foreign investment inflows and confidence in South Korea’s economic outlook increased demand for the currency. Expectations of tighter monetary policy and higher interest rates also supported the won by attracting international capital. In contrast, the Russian ruble, South Sudanese pound, and Bolivian boliviano weakened due to a combination of lower export revenues, foreign exchange shortages, inflationary pressures, and broader economic challenges. Limited investor confidence, economic uncertainty, and reduced access to foreign currency continued to weigh on these currencies.
The appreciation of the Korean won has been driven by strong foreign investment flows and confidence in South Korea’s economic outlook, which have increased demand for the currency and strengthened its value relative to other currencies. Another factor contributing to the won’s strength is the expectation of tighter monetary policy and higher interest rates, which can attract capital from international investors seeking higher returns and place additional upward pressure on the currency.
The Russian ruble has depreciated due to a combination of reduced export revenues, persistent inflation, and international sanctions. Because oil and gas exports account for a large share of Russia’s foreign exchange earnings, lower energy revenues and sanctions affecting key sectors have reduced demand for the ruble and placed downward pressure on its value. Another factor contributing to the ruble’s weakness is increased government spending, particularly on defense, which has fueled inflationary pressures and placed additional strain on the economy, further weakening the currency.
South Sudan’s economy continues to face significant challenges, and the weakness of the South Sudanese pound reflects the country’s heavy dependence on oil exports and ongoing economic instability. Foreign currency inflows remain limited, as disruptions to oil production and transportation have reduced export earnings, while high inflation and shortages of foreign exchange have further weakened the currency. Additionally, political uncertainty, conflict, and underdeveloped infrastructure have lowered investor confidence and placed additional pressure on the pound. In response, the central bank has implemented various monetary and exchange-rate measures aimed at stabilizing the currency, although the long-term effectiveness of these efforts remains uncertain.
The Bolivian boliviano has depreciated due to a combination of declining foreign exchange reserves, reduced export revenues, and a persistent shortage of U.S. dollars. Because Bolivia relies on export earnings to generate foreign currency, lower dollar inflows have weakened confidence in the boliviano and increased pressure on the exchange rate. Another factor contributing to the currency’s weakness is growing concern over economic imbalances and the government’s ability to maintain exchange-rate stability. These concerns have increased demand for dollars and placed further downward pressure on the boliviano.
Exchange rate movements such as these can have a direct impact on international assignment costs. Because Cost-of-Living Allowance (COLA) is designed to help protect an employee’s home-country purchasing power, changes in the exchange rate between the home and host locations may result in adjustments to the allowance. A strengthening or weakening home or host currency can therefore cause COLA to increase or decrease over time. Along with inflation and deflation, regularly reflecting exchange rate changes helps ensure that allowances remain responsive to changing economic conditions.
If currency movements are raising questions for your global mobility team, AIRINC can help you understand what they may mean for your program. Contact us to learn how our data and expertise can support your global compensation and mobility strategy.
What is global mobility tax? How does tax work for international assignments? And what do mobility teams need to know about tax equalization, payroll, business travelers, remote workers and mobile compensation? This autumn, join us with Andersen as we present Global Mobility Tax: The Essentials Refresher, a three-part webinar series designed to make global mobility tax a little easier to navigate. Whether you work in Global Mobility, HR or Global Tax, the series will take you from the fundamentals of mobility tax through to mobile compensation and the tax considerations associated with different types of international mobility.
September 22 | 10:00 AM Boston / 4:00 PM Brussels REGISTER
We will start with the fundamentals, including how common mobility allowances and expenses are taxed, what a gross-up is, and where payroll fits into the picture.
October 21 | 10:00 AM Boston / 4:00 PM Brussels REGISTER
This session looks at how tax affects international assignment compensation and costs, including equity, compensation structuring, corporate tax considerations, and cost planning.
November 17 | 10:00 AM Boston / 4:00 PM Brussels REGISTER
Our final session explores how tax considerations can differ for international assignees, short-term assignees, business travelers, and remote workers, with a look at tax equalization, treaties, and social security.