Who is the fairest of them all? Photo: iStock
A collage of Asian currencies Photo: iStock

2020 has been a challenging year for economies across the world, with previously strong currencies enduring protracted declines and previously steady currencies succumbing to periods of volatility.

Comparing various Asian currencies with the US dollar (USD) can provide an insight into how different parts of the continent have coped with the tough economic conditions throughout the year.

By utilizing the USD as a fixed point of comparison, it becomes easier to see which Asian currencies boast upward mobility and which currencies are understandably stagnating. 

How to compare Asian currencies

Asia is a vast, heterogeneous region that cannot be treated as a single economic entity, so it is worth identifying three major currencies to represent their part of the continent.

The USD is the world’s dominant currency, so the greenback provides the logical means of comparison. Given that it drives the world’s largest economy and underpins many smaller national economies, the reach of the US dollar is extensive.

The USD also plays a huge part in the forex trading industry, as the dollar is the most common feature in the currency pairs that fill the foreign exchange markets. Virtually every currency in the world can be traded against the USD.

This makes the USD a useful benchmark that can be compared against individual currencies, but that can also be used to compare the performance of countries from across Asia.

This is where the data and the analytical tools hosted by online forex trading platforms come to the fore. For example, the USD/JPY currency pair denotes how many Japanese yen are required to purchase one USD.

That single USD becomes the common denominator in a comparison with the Philippine peso, courtesy of the USD/PHP currency pair. By having the constant of the USD in these pairs, it is easier to track the scale of increases and decreases in the value of an Asian currency. 

The Chinese yuan – East Asia

Source: Pixabay

The USD is known as the greenback and the Chinese yuan (CNY) is sometimes referred to as the redback. China is the world’s second-largest national economy, so the Chinese yuan is understandably one of the most-followed currencies. 

The relationship between USD and CNY has been characterized in recent years by the trade dispute between the two countries. The trade dispute has taken a backseat for much of 2020, a year which has seen the yuan make steady gains against the USD.

The USD/CNY currency pair began the year at 6.9517, but by mid-September, a robust Chinese economy had driven that figure down to 6.7641. The fewer yuan required to purchase one USD, the better the shape of the Chinese currency.

This was the yuan’s best position against the dollar since May 2019, a position which was the culmination of an eight-week run of Chinese gains. This dominance was the result of the Chinese economy swelling by 3.2% in Q2 of 2020, with the US GDP plummeting by a record 31.7% in the same period.

The Indian rupee – South Asia

Source: Pixabay

India comfortably boasts the largest economy in South Asia, making it the most suitable representative for the region in comparisons with the USD. The last decade has generally witnessed the USD making gains against the Indian rupee (INR).

At the start of 2010, one USD was worth ₹45.52. By the start of 2020, that figure was around the ₹71 mark. However, a look at just 2020 reveals that the Indian rupee has started to claw back some of its losses against the traditionally dominant USD.

In early April, one USD was valued at around ₹77.57. By September, the USD/INR had fallen as far as ₹73.67. That drop of approximately 5% in India’s favor marked the rupee’s ability to take advantage of a weakening USD.

That was the consequence of announcements in the US of interest rates remaining exceptionally low, although the USD/INR may return to its standard trajectory once that news has settled with investors.

The Kuwaiti dinar – Western Asia

Source: Pixabay

Many currencies in Western Asia, including the United Arab Emirates dirham and the Qatari riyal, are pegged to the USD. This is because these countries rely heavily on exporting oil to produce their national wealth, and oil prices are denominated in USD.

Pegging to the American currency means that these Western Asian currencies can largely remain stable, even in periods where exports are disrupted. 

The Kuwaiti dinar (KWD) is perhaps the most notable currency in this region, given that it is a frequent contender for the world’s most valuable currency. The dinar is pegged to a basket of currencies, which means that it is highly stable. 

On September 21, the KWD/USD currency pair was at a value of 3.27, meaning it cost $3.27 to purchase one dinar. While the lack of volatility in the currency pair reduces the chance for trading opportunities, there are still fluctuations.

The dinar sunk as low as $3.17 in mid-March 2020 as oil prices plummeted, although the Kuwaiti government intervened to prop up its economy.

A look at these three currencies reveals the different experiences that national economies in Asia have had in 2020, while the comparison with the USD makes it easier to track that performance. It will be interesting to see if current trends continue until the end of the year.