Currency crisis in the Emerging Markets

The year 2013 has seen a global sell off resulting in the fall of currency in most emerging markets including Brazil, India, South Africa, Indonesia and Turkey. The charts below show the currency movement of the emerging nations versus the US Dollar in the last 5 years. (Source: http://www.xe.com/currencycharts )

Brazilian Real has fallen more than 14%  against the USD.

Indian Rupee has fallen about 20% against the dollar in 2013 and hit a lifetime low 68.85 per USD.

South African Rand hit the R10/$-mark for the first time since 2009, the lowest value in four years as poor economic data and labor market tensions weighed on sentiment.

Indonesian Rupiah has slid nearly 12% in 2013.

The Turkish Lira has fallen to a record low of 2 to the US Dollar, the lowest level record since 1981.

The under performance of these currencies can be attributed to the widening of the current account deficit in these countries including Brazil, India, South Africa, Indonesia and Turkey, with the CAD/ GDP ratio exceeding the levels set by the respective governments. The anticipation of the reduction in the US Federal Reserves’s stimulus program from September 2013, is causing outflow of foreign money from the emerging markets  into the United States, resulting in a further weakening these currencies.

In contrast, Chinese Yuan Renminbi has seen an appreciation in the corresponding period. Economists attribute it to high foreign exchange reserves and lower dependency on hot money inflows. 

The fallout of the depreciation can be felt in the rising costs of imports, increasing prices of petroleum products, fertilizers, commodities and loss of purchasing power due to inflation. The borrowers in these countries with dollar-denominated loans may not be able to pay back the loans, thereby increasing the default rates.

While the government and central bankers are taking measures to arrest the depreciation of their currencies by raising interest rates, curbing imports and tightening monetary policy and regulators are taking steps to reduce arbitrage opportunities and speculations in the currency markets, the overall remittances to some of these countries, particularly India has seen a jump, with Non-Resident Indians (NRIs) remitting more money to India, taking advantage of the depreciating rupee.  

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• CHART OF THE DAY: The Indian Rupee Is Getting Absolutely Brutalized (businessinsider.com)
• Analysts Say Emerging Market Turmoil Not Another Asian Currency Crisis (thejakartaglobe.com)
• And the Emerging Markets Winner is…Eastern Europe (blogs.wsj.com)
• Fall Of Rupee - Part II
• Fall Of Rupee