A change in the exchange rate can instantly change an expat's life, especially if they earn in one currency but spend in another. Exchange rates are directly linked to expats' budgets. Currency convertibility works in a similar way to stocks and shares. The more attractive the currency is, the more it is in demand, and the greater the value will be. Likewise, the opposite is also true, which leads to the currency being devalued.
According to the Bank for International Settlements report, Turnover of OTC Foreign Exchange Instruments by Currency, the most tradable currencies in the world are, in order, the US dollar, the Euro, the Japanese Yen, and the British pound. On the other hand, currencies such as the South Korean Won and Chinese Yuan are known as partially convertible currencies, while the Brazilian Real, Argentinian and Chilean Peso, for instance, are harder to convert.
Besides the convertibility, the devaluation of a currency can happen for many reasons, for example, if one country attempted to combat a trade imbalance with one of its partners in the region, or for political reasons as tensions arise between Russia, Ukraine, and the US. Although currency devaluation is a technical concept, it still brings some implications that expats must be aware of—particularly when it comes to working abroad.
For most expats, the issue is usually when the currency suffers a devaluation, when coming from countries where the currency is less worth it compared to the host country one, expatriates struggle to save money, travel for leisure and even making the ends meet. For instance, if Brazilians want to live in Germany, and they had saved their year average salary in Brazil (2,130 Euros), they can only live for about three months in Germany, as the average monthly expenses in the country are around 860 Euros. Although Euro is one of the easiest currencies to convert, its characteristic increases its value, besides other current economic and political instability due to the pandemic crisis, making it really expensive for expats coming from the global south, for example.
An expat from Argentina, whose currency (Peso Argentino) has been devalued due to a high inflation tax, will probably find it very hard to live anywhere in Europe or North America, as 1 Peso Argentino is worth 0.0085 Euro. Even if expats from Argentina go to Brazil, where its currency is not the easiest to convert, and it is not overvalued, 1 Peso Argentino is worth only 0,053 Brazilian Real.
Expats and currency devaluation
Being paid in the host country's local currency, as opposed to their home country's currency for longer assignments that go on for months or even years at a time, can be particularly detrimental for expats. But, on the contrary, expats who live abroad and continue earning on their own currency, depending on the degree of currency devaluation that is experienced, could ultimately lose a significant amount of money from fluctuations. All of this is because the currency in which they are being paid is no longer worths what it once did when the work began.
Currency devaluation is a concept that goes across all aspects of expat's daily life. If they were given a specific allowance when their job first started to cover routine expenses, for example, that total might be appropriate today. But if there is suddenly a big shift in the value of the local currency, that same amount may not cover what they are paying, imposing an uncertain future.
What expats can do?
For many expats, a great solution to currency devaluation comes by finding a job in the host country or at another place (working remotely) that has the same or equivalent currency. Many companies operating on a global stage (or those who are in the process of expansion) are more likely to hire expats, and even those in their home countries with chains abroad, can often pay their employees in the currency of the country they're working at, and not necessarily where they have signed the contract.
Likewise, expatriates might find some international companies that choose to use an interim review to check currencies devaluation and adjust salaries according to employees' host countries. However, this is a much more time-consuming approach from an administrative point of view, as it requires a lot of time. Despite this additional burden, this too would be effective for taking into account factors like price inflation and cost of living adjustments for expats.
