Since July 2013, weekly SICAD auctions have been determining a second rate, covering non-priority imports and tourist activities.
The recently launched SICAD 2 introduces more flexibility and raises hopes that distortions across markets may be corrected. We’ve touched on the impact that currency risks can have on frontier market investments before, but countries with fixed exchange rates present a unique dilemma. We scoured the web for a good list of countries that still use fixed currency rates and were left wanting.
Africa is home to most of the fixed currency countries at 19, with 14 of them using the CFA franc that is pegged to the Euro and three pegged to the South African Rand (ZAR) as part of a Common Monetary Area.
Argentina and China are in very different situations, but despite heavy central bank intervention, neither of them can be considered true pegged currencies. Argentina has both an official and an unofficial (Dolar Blue) rate, but the official rate has been moving with USDARS moving almost 34% higher since the beginning of Jan 2014.
As long as the official exchange rate or official trading band is moving around, we do not consider the currency pegged. Kuwait is pegged to a basket of currencies and not to the USD, and it does fluctuate so we did not include it. Private firms, public entities and individuals will be allowed to participate in this activity, which was previously reserved for the Central Bank. About 82% of dollars have been so far channeled through the Bs 6.3 per US $ rate, which was recently constrained to food, health and education.
On the one hand currencies are by definition stable, alleviating currency worries since FX volatility is near zero.
Existing ones out there contain outdated information, or are filled with currencies of small countries that are irrelevant even to frontier investors. The Middle East is another bastion for fixed currency rates, with 7 countries all pegged to the USD.
However, the fix midpoint moves everyday so the band is moving (unlike in Hong Kong which is included in the list above), and the currency has strengthened significantly over the past few years.
That midpoint is always moving so that is why we do not consider China a pegged currency either.
In general this list does not include countries that peg their currency to a basket of other currencies, like the Singapore dollar, since the currency itself still moves and the composition of the baskets usually change as well.
A fourth dollar price is determined in the black market and has jumped from Bs 20 per US $ to Bs 87 per US $ over the past twelve months, reaching 14 times the first official rate. This is why we have compiled a list of all countries that still maintain fixed currency exchange rates and have populations over 1 million (with some exceptions).
There has also been much talk of the band widening further as they move towards internationalization of the currency, so in most regards China does not have a fixed exchange rate.
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