Problem
Exchange rate volatility
Other Names:
Instability of exchange ratesFloating exchange rates
Fluctuations in value of foreign currencies
Local currency depreciation
Foreign exchange instability
Exchange rate turbulence
Unstable currency
Nature:
When exchange rate movements are comparatively more active they create or fuel uncertainty in the global and national economies and lead to conservatism in terms of investment. Interest rates may be affected in an upwards direction, and developing countries earnings from exports lowered while import prices are raised by these exchange fluctuations. Increased exchange-rate instability has reduced the effectiveness of tariffs as a protective device and made more direct controls more attractive.
Incidence:
Instability of foreign exchange was very common in a number of African countries in the past decades. In Ghana, for example, the annual average conversion rate of the cedi to the USA dollar was c2.75 to $1.00 in 1981 and c147 to $1.00 in 1987 (a depreciation of 5,240%). In Nigeria the conversion rate of the naira in 1981 to the US dollar was N.61 to $1.00 versus N4.23 to $1.00 in 1988 (a depreciation of 593%). Uganda and Sierra Leone have been similarly affected by large currency depreciations over the same period.
Broader Problems:
Instability of the world economyMismanagement of exchange rate system Related Problems:
Attractiveness of overseas work Aggravates:
External debt crisisCurrency black marketInstability of pricesMisalignment of currenciesRestrictive trade practicesForeign exchange restrictionsForeign exchange reserve shortagesInstability of ocean freight ratesProhibitive cost of imported goodsFluctuations in real value of moneyDrug-related threats to national integrityFragmentation of the international trading systemExcessive cost of transferring funds across bordersUncertainty of development expenditures due to floating-rate loansInability of countries to adopt appropriate exchange rate policiesAdverse environmental consequences of depressed agricultural pricesForeign currency manipulations in accounting records of transnational corporations References:
Krugman, Paul: Exchange Rate Instability Subject(s):
Commerce → Commercial exchangeCommerce → Currency
Meteorology → Meteorology
Societal Problems → Instability
Society → Foreign
Society → Local
Value Redistribution → Value redistribution
Related UN Sustainable Development Goals:
Problem Type:
D: Detailed problems Date of last update
04.10.2020 – 22:48 CEST