The saying pride comes before a fall is apt for governments and the way they view managing their currencies, according to financial experts.
National pride is linked to foreign exchange rates and often the best decision for the currency and economy is put aside for political reasons.
The point is made by currency professionals at ECA Money Moves, who monitor exchange rates and inflation around the world for multinational companies putting benefits packages together for expats working in diverse locations.
The firm’s economic analysts Andy Payne explains in his latest blog that devaluing a currency is often the best option to resolve a country’s economic problems, but governments go to extraordinary lengths to avoid taking the action.
The current examples include Russia and Argentina.
Putin poser
President Putin is well-known for extolling personal and national pride as a leader and is seeing the value of the rouble plunge on his watch mainly due to falling oil prices worldwide and self-inflicted sanctions following Moscow’s annexation of The Crimea.
Following a downgrading of Russia’s credit rating by Moody’s, the rouble has lost 8% in value against a strengthening US dollar and is likely to slip further as inflation rages at more than 8% and sanctions begin to bite harder.
“The rouble only has one way to go and it’s not up,” said Payne. “The central bank wants to float the rouble to ease economic problems, but the president has spoken against this even though this may resolve at least some of his issues.”
In Argentina, a will-they, won’t-they devaluation dilemma has been playing out for some months.
The value of the peso is depressingly low and still falling after the government defaulted on international debts and tried to prop up the value by spending foreign currency reserves without success.
Peso scapegoat
The head of the central bank Juan Carlos Fabrega has resigned in the face of withering scorn from President Cristina Fernandez.
“He had a hopeless job,” said Payne. “The government needed a scapegoat after media criticism about the peso claiming the way the currency was being handled was a matter of national pride.
“His successor Alejandro Vanoli will have to find ways of coping without what the president calls the shame of devaluation.”
The peso is worth 33% less than a year ago and official inflation is running at 40%; although the government is accused of massaging the figures to much lower than they really are.
