Currency Trends in Corona Era
Only six months ago, we couldn’t imagine that the entire world would face the same invisible enemy and, shortly after, the very much visible consequences. COVID-19 has taught us that, when things indeed go south, they go south for everyone. Even the most developed countries were overwhelmed by this vicious virus.
As the spreading of the disease has clearly shown – in the 21st century we are all connected, more than ever. In just a short period of time, coronavirus has reached all continents and almost every country on Earth. Nonetheless, besides the long and tiring medical battle, and a high toll in human lives, the “Great Lockdown” has us facing another less evident global setback. One that is threatening to wreak longer-term damage than the virus itself.
It’s the recession.
What Is Happening on the Global Stage
Major Effects of the Pandemic Leading to Economic Consequences
- Lockdown measures bringing global economic wheels to a screeching halt
- Service industry companies are severely hit, resulting in the weakening of national economies
- Businesses being forced to reduce operations or even close their doors for good leading to an increase in unemployment
- Financial markets hitting new lows, get it square on the jaw with oil prices plummeting into negative values
When we cast a glance at the list above, the math is pretty simple. Due to the safety measures introduced by governing bodies, entire industries were put on a pause. For example, in the first country that battled this disease, China, industrial production has fallen by 13.5% in the first two months of 2020, compared to 2019. It was the first domino that triggered others around the world – soon, shipping wasn’t available either, and assembling those products around the world was a real hurdle. Everyone who was importing goods from China (and that’s pretty much the entire world) felt the first kick to their national economies, especially noticed in the EU.
So, the self-imposing question popped up – is the nationalization and regionalization of supply chains the next logical step? Though possibly beneficial to certain countries, this trend could truly jeopardize the global economy as a whole.
Additionally, the International Monetary Fund (IMF) projects that 170 sovereign countries will face negative per capita income growth this year, due to, what they’re calling the “Great Lockdown”. This piece of data sounds even more severe if we take into account that the initial, pre-corona projection was actually positive for 160 countries. The IMF’s managing director, Kristalina Georgieva, admitted that the second half of the year could even be worse since governments and enterprises are unable to plan ahead. She said that the drop in prices for crude oil and commodities left many countries without vital income sources. Finally, she urged policymakers to think about recovery and to direct national budgets onto that route.
Unfortunately, the Economist Intelligence Unit (EIU) warns that governments’ stimulus packages will lead to greater sovereign debts and, possibly, to another recession later on. The experts agree – this is the worst economic crisis after the Great Depression, and we may be seeing its effects for years to come.
What was particularly interesting in the 1930s was the fact that this all-encompassing economic crisis caused deflation (a decrease in the price of goods and services) due to the fact that there were more unemployed people with less income. High deflation and high inflation are both dangerous to the global economy since they disrupt the stability of money’s purchasing power.
Can the recession caused by the COVID-19 pandemic lead to any of these two scenarios? Experts are currently wary of predictions and, of course, the situation differs from country to country. So, which countries are the most vulnerable at the moment?
The Value of Money in Times of Corona
The coronavirus pandemic has already had an enormous impact on the global economy, but what will happen in the aftermath, nobody can still claim with certainty. Governments and central banks worldwide are trying to take the necessary steps to overcome this economic crisis, and if possible, avoid or at least alleviate the impact of most devastating scenarios.
We have been tracking the state of the global economy, as well as the state of some of the most powerful global currencies via our stabilizing mechanism, the MMU, ever since the COVID-19 crisis has started. Thanks to the fact that the MMU, our Monetary Measurement Unit – is an index that reflects predictable and sustainable global economic growth, we had a stable measure against which we could compare every fiat currency in the world.
The MMU takes into account numerous macroeconomic indicators from more than 190 countries and it is further stabilized by incorporating forex indicators from a basket of currencies and premium sovereign bond yields from 10 of the world’s strongest economies (based on annual GDP and participation in the global economy). That is what enables Anchor to remain stable and to preserve its purchasing power in the long run.
Interestingly, we were able to identify fiat currency trends that correlate to the impact this pandemic has had on these countries. We’ve extracted the data from the MMU, and identified the 5 currencies that have been most heavily affected by the crisis, and the 3 that have been able to completely maintain their stability.
Five Fiat Currencies That Have Suffered the Most Due to COVID19
- Brazilian Real
The most unstable currency compared to the MMU is Brazilian Real. As you can see in the image above, the blue line represents the value of Brazilian currency expressed in ANCT. The red line represents the inflation of the aforementioned currency. As of January 1st, 1 ANCT could have been bought for 3.19 BRL, while on April 27th the value of 1 ANCT was 4.4 BRL. What does this mean? It means that if you had bought ANCT with BRL on January 1st, you would have saved 37,93% of the purchasing power of your holdings so far. We believe that the numbers speak for themselves in this case, and demonstrates just how Anchor stablecoin can be used in a period of economic turmoil.
The political scene in Brazil and Latin America, in general, has always been turbulent. In the previous decade, Brazil seemed to have been in a period of outperformance because the rest of the world turned to Latin America. There was a higher demand for raw materials from China, so the mining economy boomed. The US didn’t cause any problems, as the Latin American migrant population who lived in the US sent remittances home. And, generally, a rising interest to invest in the region emerged. Accordingly, the prices went up along. But, the end of the outperformance period seemed to have come in 2018. Now, the coronavirus pandemic has exposed low levels of preparedness for such a vast number of people infected. The health minister has been fired, and as a consequence, the justice minister also resigned. Now, due to the fact that political tides are shifting, the demand for raw materials from this country is much lower, especially for oil companies. In addition to this, the Brazilian central bank has had to intervene three times already, to prevent further plummet. The combination of leadership errors and currency’s tumble to a record low points towards a potential for another plummet in the near future unless something drastically changes in Brazil.
- Mexican Peso
As an immediate follower comes another Latin American country – Mexico and its national currency, Mexican peso. According to the graph, it is clear that Mexican peso is not far from Brazilian real. If January 1st is taken as the starting point and April 27th as the ending one, then 1 ANCT could have been bought for 15.04 MXN and 19.69 MXN respectively. This difference in price implies that this currency has lost 30,9% of its value during this relatively short period, which made us look into what has been going on in this country since the beginning of the pandemic. The Mexican peso is also currently experiencing a lower inflation rate due to the decreased demand for goods, especially fuel, in the period of the pandemic. But, that does not mean Mexican peso is regaining stability. The economic change is also directly related to how quickly the country’s leadership imposed strict measures in the battle with the virus. The number of confirmed cases in Mexico is rising, and the country is not prepared for the worst-case scenario. Another reason for this country’s national currency’s plummet – Mexico is a country that relies on oil, remittances, and tourism. With the COVID-19 coming on stage, all of these sectors are in great jeopardy and they have already started to see a significant decline. Additional OPEC supply buildup has hit Mexico hard and caused a significant decrease in the value of the peso. With Mexican Peso being one of the top 15 most traded currencies in the world, this decline will also have an effect on the global economy, but experts presume it will not continue its downfall much further, thanks to the sheer trading volume, as well as country’s physical proximity to the United States, that encourages notable commercial activity.
- Russian Ruble
The third place on this list goes to Russian Ruble. The percentage of the value decrease is not as high as in the previous examples, but it is certainly very significant. On January 1st, 1 ANCT could have been bought for 49.2 RUB, while on April 27th you could have gotten one ANCT for 58.5 RUB, which further implies that the percentage of the value this currency has lost is 19,5%. As opposed to two previous examples, the inflation rate in Russia has experienced an increase. It reached 2.5% in March this year, contrary to the previous period when the inflation rate was 2.3%. What preceded the coronavirus outbreak in Russia is the collapse in talks between Russia and the OPEC cartel about the oil prices which as a result had the depreciation of Russian ruble. Shortly after, the pandemic reached their soil, and Russians soon found themselves on lockdown. As a consequence, they started to stockpile and the prices of certain products have slowly increased during the previous month. According to the central bank, there is a threat that the inflation rate could surpass the government’s objective of 4% for this year. However, according to the market movements, and the MMU/RUB trendline, we can see that this currency may be on its way to a new stable period, which is probably due to this country’s proactive treatment of the Corona outbreak.
- Turkish Lira
Turkey is a country that is well known for its high inflation rate. As such, changing Turkish Lira for Anchor would be a good investment. Once again, January 1st taken as entry date, 1 ANCT could have been purchased for 4.7 TRY, while on April 27th 1 ANCT was equal to 5.5 TRY. So, expressed in percentages, the Turkish lira has lost 17% of its purchasing power. The inflation rate in Turkey is now slightly lower than in the previous years, decreasing from 12.37% to 11.86%, which is again normal due to the decreased demand for goods. In recent years, Turkish Lira has been losing its value against USD and the prices of the raw materials have been rising. Agricultural production has particularly dealt with the consequences, as many of the farmers were forced to move to other sectors as it no longer paid off. Coronavirus outbreak has put this country in a very vulnerable position – with a fragile national currency, decreasing reserves, and high external debts, Turkey’s economy is already showing signs of distress. Furthermore, as a response to the pandemic, the central bank slashed its interest rate, but many experts believe this could put further pressure on TRY.
- Indonesian Rupiah
Indonesia belongs to the group of countries whose inflation rate is lower during the pandemic, but it is not significantly different from the previous period. The inflation rate changed from 2.98 to 2.96. However, this relative stability did not have an effect on the nation’s fiat currency. With the two dates already mentioned, January 1st and April 27th, 1 ANCT could have been bought for 11064.6 IDR and 12279.9 IDR, respectively. So, expressed in percentage the Rupiah has lost 10.9% of its value during this period. In order to fight the pandemic, the decisions the Indonesian government made are radical. The president of Indonesia Joko Widodo has decided to allow more spending and budget deficit to widen, which would lead to a deficit of 3% of GDP for three years. There is a threat for Indonesian Rupiah to fall further against the USD and to hit an all-time low, and that certainly does not make it a stable currency or a good store of value for its citizens.
Three Currencies That Have Weathered the Pandemic Storm
Although most countries have been struggling to maintain stability and normalcy during this pandemic, some have been more successful at achieving it than others.
- Japanese Yen
One of the most stable currencies and often referred to as a safe haven is definitely Japanese yen. But, it has not always been one. In the crisis during the late 1990s, the Japanese yen was significantly weaker than today. However, what is most important here is that they learned their lesson, and with their new policy turned out to be the most stable currency in the world. What have they done to make such a change? New policy measures, as bank injections, and new laws that allowed authorities to deal better with the banking failures were introduced. Additionally, Japan has been the world’s top creditor nation for almost three decades, which means that they buy bonds of other governments to a great extent. Once the panic hits, many of the bonds will be offloaded and converted back to yen, which will increase the demand for the currency. Finally, the Bank of Japan was the first to implement quantitative easing and near-zero interest rates. The outcome of these measures is a very strong Japanese yen, although it doesn’t mean that the drop in tourism and disruption of global supply chains will not affect the Japanese economy in the long run.
- Swiss Franc
The second currency on our list of the most stable currencies is the Swiss franc. The Swiss government and Swiss financial system have long been known for their stability, so no wonder Swiss franc is one of the most stable currencies. But, what is their secret of success? The greatest surge of Swiss franc happened in 2015 after the Swiss National Bank suddenly removed the peg of 1.20 francs per euro. After that, Swiss franc gained 30% against the euro, and 25% against the US dollar and remained stable, even now during the pandemic. Due to its reputation in the world, the Swiss franc has reached its highest in February this year, since July 2015, as COVID-19 concerns pushed investors towards safe-haven assets. The key to the stability of the Swiss franc lies not only in the great policy of the Swiss government and the central bank but also in the lower level of the national debt.
- United States Dollar
The third currency that deserves its place on this list is the US dollar. As one of the most widely used currencies, it is often considered as truly stable. Although the US has been badly hit by the pandemic, the US dollar seems to have remained stable, for now. The actions FED took played a key role in maintaining stability. What did they do? They have cut the interest rates to stimulate the economy, but this can potentially lead to the denomination of their currency. What adds to the stability of the USD is the stable political and economic scene in the US, and the fact that the currency itself is not as volatile as its emerging market counterparts. As the USD is the leading currency, $1.8 trillion of it is in circulation outside the US borders, which helps the dollar to remain stable and strong.
In Times Like These, We Need Stability
Extraordinary events such as this pandemic can influence every pore of everyday life. Since these circumstances aren’t normal, negative consequences are inevitable. However, was everything truly okay before the global catastrophe? Changpeng Zhao, CEO of Binance, commented that the global economy was already weak before all this, and that’s exactly why some markets and currencies are collapsing at the moment.
He indeed was onto something. The USD has already lost 55% of its purchasing power during the last three decades, the euro almost 45%, and the same goes for every major fiat currency, even for those that are currently preserving their strength. You don’t need a financial crisis to lose value. Inflation may not always be visible and progressive, but it’s inevitable for fiat money in the long-run. The truth is harsh but simple – you will never be able to fully preserve the value of your assets with fiat. Unlimited supply and constant printing will always take their toll. It’s not surprising that in these times, many countries are exploring the idea of digitizing their national currencies as a response to these vulnerabilities.
Slowly, people are turning to crypto as a new safe haven, like in Argentina. It is not a coincidence that crypto adoption is at a high level in countries such as Turkey, Brazil, Argentina, and Mexico. Faced with the financial crisis, these people look for a solution, and they see it in cryptocurrencies for a good reason.
Nonetheless, traditional cryptocurrencies like bitcoin have their own issues. Limited supply, in a way, ensures superiority to fiat in terms of increased value, but the biggest hurdle here is high volatility. We all know that the BTC price often goes on a rollercoaster making it a great currency for trading, but if you are a regular Joe with no desire to struggle with ‘red and green days’, this is probably not the best solution for you.
Stablecoins could easily be labeled as the ‘invention’ of the decade since they aim to solve this problem and serve as a bridge between masses and crypto. Bear in mind that stablecoins are not a homogeneous group and their tokenomics’ can vary a lot. The most common stablecoins are the one directly pegged to the concrete fiat currency, ie. the American dollar. However, since their value peg is susceptible to inflation and loss of purchasing power, they share the same vulnerabilities, too. Other stablecoins that are pegged to commodities, i.e. crude oil, depend on their value, and as we’ve seen in the past month, that value can even go below zero!
You are probably now wondering – okay, what can I do if I don’t want to lose the value of my assets in these tumultuous times? The answer is simple, you find a currency that is resistant to inflation in the long-run, has constant price stability, and can indeed preserve your purchasing power.
That currency is called Anchor stablecoin (ANCT) and it’s designed to respond to all issues that fiat currencies and other cryptocurrencies have. ANCT rests on four safety pillars that ensure a truly stable price, even in times like these. In this article, you’ve already encountered the Monetary Measurement Unit, ANCT’s algorithmic value peg that reflects the growth of the global economy. The MMU will keep its stability even if a major fiat currency crashes in value. By taking the entire global economy into account, the MMU remains above market issues and challenges that individual currencies or commodities are facing.
Additionally, to ensure that the ANCT’s value won’t vary due to the potential supply/demand hurdles, a dual-token mechanism has been developed. Dock token is a utility token used during the Expansion and Contraction phases to maintain the equilibrium with the value of the MMU. The Expansion phase is triggered to protect the price when there is an increase in demand for ANCT, and the Contraction phase is triggered when there is an oversupply. In both cases, the price of Anchor token will remain stable and thus your assets protected.
You have a right to preserve what you’ve earned, and a right to be in control of your assets. Global economic events are much bigger than one mere consumer and controlling them is out of any individual’s reach. Nobody alone can control what happens worldwide, but individuals, organizations, and enterprises can do something to protect the assets they have from volatility.
They can choose ANCT.
How to Purchase ANCT?
Disclaimer: The information provided in this post is not legal, accounting, or financial advice. I am not a lawyer, accountant, or financial advisor. I am not registered as an investment adviser with any federal or state regulatory agency. The Information should not be construed as investment or trading advice and is not meant to be a solicitation or recommendation to buy, sell, or hold any cryptocurrencies.
Title photo by SergeyBitos, Shutterstock.