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When the currency depreciates: the top income of the world's cheapest currency this year
The world’s cheapest currencies come from countries facing deep economic challenges, from high inflation and political instability to lack of economic diversification. Understanding these differences helps us see a clearer picture of the global economy and why exchange rates vary so much.
Comparison Table of the Cheapest Currencies in the World
Why Do Currencies Devalue: Main Factors Affecting Currency Depreciation
The devaluation of many currencies isn’t accidental but results from long-term economic and political issues. Countries struggling with hyperinflation, investment shortages, or economic sanctions often see their currencies suffer massive losses. These factors cause foreign investors to avoid holding that currency, reducing demand and rapidly decreasing its value.
1. Lebanese Pound (LBP) - The Most Difficult Currency
Since 1939, the Lebanese Pound, or Lira, has been Lebanon’s official currency. It used to be relatively stable, but over recent years, Lebanon has faced prolonged economic and political crises. By 2019, inflation hit triple digits, and the currency lost over 90% of its value in the black market.
Lebanon’s Economic Situation and the LBP
Lebanon exemplifies a complete economic collapse. After the government defaulted on debt in 2020, banks nearly shut down. People couldn’t withdraw their savings, and financial chaos spread widely.
2. Iranian Rial (IRR) - Result of Economic Sanctions
The Iranian Rial, once relatively stable, has plummeted sharply due to heavy economic sanctions imposed by the US and allies. With trade deficits, hyperinflation, and ongoing geopolitical instability, Iran faces tough times supporting its currency.
Challenges Facing Iran
Global political tensions, oil export restrictions, and lack of international trust have led to capital flight. With inflation around 40-50% annually, the IRR has almost become worthless.
3. Vietnamese Dong (VND) - During Adjustment
Vietnam’s economic history is interesting. After the war, it had a centrally planned economy until reforms in the 1980s. The dong stabilized in the 2000s, with growth rates over 6-7% annually. Still, the dong remains weak because Vietnam controls its currency to boost export competitiveness.
Economic Policies and Exchange Rate Impact
Despite a strong economy, Vietnam’s central bank maintains a weak dong to stay competitive globally. For example, the dong is relatively stable, and the country runs a trade surplus, meaning exports exceed imports.
4. Laotian Kip (LAK) - Slow Development
Laos, one of Southeast Asia’s poorest countries, gained independence from France in 1952. The kip was pegged to the French franc initially, but after economic reforms in the 1990s, it floated and depreciated steadily.
Why Is the Kip Weak?
Laos relies mainly on agriculture and resource exports, with limited industrialization and foreign investment. Post-COVID-19, inflation surged, and the economy declined, keeping the kip weak.
5. Indonesian Rupiah (IDR) - Emerging Market Volatility
Indonesia, with the 4th largest population and a top 16 economy, still has a weak rupiah. This is mainly because it depends heavily on commodity exports like palm oil and minerals. Global prices heavily influence the rupiah’s value.
Indonesia’s Market Impact
Foreign investors often shift to safer assets, causing the rupiah to weaken. The central bank intervenes periodically to stabilize the currency.
6. Uzbek Sum (UZS) - From the Old World
Uzbekistan gained independence from the Soviet Union in 1991, adopting the sum in 1994. Its economy depends on natural gas exports and agriculture. Despite reforms in the 2010s, reliance on natural resources persists.
Economic Challenges
Strict controls and limited foreign investment hinder growth. Inflation and currency depreciation remain issues, though gradual liberalization is ongoing.
7. Guinean Franc (GNF) - Local Instability
Guinea, independent from France since 1958, adopted the GNF. Weak infrastructure, limited foreign investment, and ongoing political and economic instability cause the currency to suffer under heavy pressure.
Economic Problems
Guinea relies on agriculture and mining, with political instability and corruption hampering development. The franc struggles to retain value.
8. Paraguayan Guarani (PYG) - Latin America
Since 1943, the Guarani has faced many financial crises, including persistent trade deficits, leading to a low valuation.
Economic Obstacles
Heavily dependent on agricultural exports like soybeans, and debt levels are high. Currency issues reflect limited economic development.
9. Malagasy Ariary (MGA) - An Unusual System
Madagascar introduced the Ariary in 2005, replacing the Malagasy franc. Interestingly, 1 Ariary = 5 Iraimbilanja. The economy relies on agriculture, tourism, and resource exports.
Economic Conditions
Widespread poverty, political instability, and limited financial tools make Madagascar vulnerable to downturns.
10. Burundian Franc (BIF) - The Most Struggling Country
Since independence in 1964, Burundi’s franc has been the national currency. It’s among the poorest and most unstable countries, with an economy dependent on subsistence.
Economic Issues
Burundi faces chronic trade deficits, limited industry, and reliance on foreign aid. Inflation, food insecurity, and political unrest make its economy fragile.
Factors Influencing Exchange Rates and the World’s Cheapest Currencies
Changes in exchange rates result from interconnected factors. Higher interest rates often attract foreign capital, increasing demand for the local currency. Low inflation helps keep a currency strong, while high inflation erodes its value.
The current account balance offers insight into economic strength: deficits can hinder investment and weaken currency, while recessions often lead to lower interest rates, reduced foreign investment, and currency depreciation.
In summary, the cheapest currencies reflect economic challenges, political instability, and lack of economic diversification. Understanding this helps us better grasp global markets and make smarter decisions as travelers and investors.