Using historical daily spot rates from Oanda, we have 1-year currency charts (midrate vs. the U.S. dollar) for each of the major devaluations around the world, beginning with Mexico in 1994. We can certainly debate appropriate starting points for each of these, and of course 2012 is not identical to 1997, but then nothing is ever perfectly identical to anything. So for the sake of coming as close as we can to comparing apples to apples, the first data point for each currency is the day which recorded the strongest midrate in the month preceding each country’s doomsday.
Three things here jump out at me:
- Maybe this is just me, but because Thailand was the one who kicked off the 1997 Asian contagion, I’ve always had it in my head that the baht took the biggest hit in percentage terms, but in fact this is not the case.
- Malaysia, who arguably suffered the “least” of any of these countries, still wound up having to peg its currency at a value about 50 percent lower (3.8 per USD) than where it started.
- Of all these countries, Thailand has come the closest to recouping its pre-devaluation level.
Clearly, not all currency devaluations were created equally. And while nothing is over until it’s over, it’s probably a good idea to quickly review the relevant facts on the Egypt situation:
- There’s still no IMF deal, but US$3.2 billion has been on the table for a while now;
- Even with IMF help, 2012 external financing needs are estimated at US$11 billion;
- The Saudis supposedly may step in to help, but I’ll believe that when I see it;
- The banking system’s lifeblood is lending to the government—some 40% of banking assets are in treasury yields, central bank reserves as of March, stand at US$15 billion, which provides barely 3 months of import cover, and inflation is currently at 10 percent;
- The Egyptian pound is being managed at roughly 6 to the dollar, with 12 month non-deliverable forwards supposedly pricing in a 20 percent devaluation at 7.45 according to this FT report, though an anonymous trader recently interviewed by Reuters claims there is no NDF market, period;
- And finally, Christine Lagarde at an April 19 press conference: “We never leave the negotiation table. Never. We will keep at it. We are as focused on helping Egypt and other Arab Spring countries as we are in helping other countries. It is not a question of focusing on one part of the world and not the rest of the world. We will address it with equal force and energy.”
Obviously there’s a lot more to say about all of this, which is why I’ve labeled today’s post as “part 1”.
In part 2, hopefully later this week, I’ll compare the telling economic indicators that historically have preceded devaluation.
For those who want to play around with the data, the date ranges, in chronological order are as follows:
Mexico: 1 Dec 1994—30 Nov 1995
Thailand: 17 June 1997—16 June 1998
Philippines: 24 June 1997—23 June 1998
Indonesia: 7 July 1997—6 July 1998
Malaysia: 10 July 1997—9 July 1998
South Korea: 1 Oct 1997—30 Sep 1998
Russia: 20 July 1998—19 July 1999
Brazil: 21 Dec 1998—20 Dec 1999
Argentina: 1 Jan 2002—31 Dec 2002
Uruguay: 1 Jan 2002—31 Dec 2002