In February of 2013 Supply Chain Matters alerted procurement, sourcing and B2B fulfillment teams to be aware of building currency turbulence involving multiple global regions, especially Latin America and Japan. At the time, the government of Venezuela had de-valued its currency by 30 percent and certain manufacturers such as Clorox and Procter and Gamble were immediately impacted financially because of their sales exposures in that country. We raised a warning flag out of concern that the cost of sales and materials among such countries would be dynamic as these various countries maneuvered to protect their economies and currencies from global influences.
Yesterday, financial markets were rocked by the news that Argentina’s currency, the peso, plunged more than 8 percent against the dollar after that country’s central bank tried to respond to a decline in international reserves. Since the start of the year the Argentine peso has dropped by upwards of 18 percent against the U.S. dollar. Argentina’s international reserves hit a seven year low and there are now increased fears for additional price inflation across its economy. The current inflation rate is believed to be upwards of 24 percent. As we pen this posting there are news reports that the government has scrapped some of its previously announced currency controls.
This is yet another reminder of the growing risks related to foreign currency de-valuation protections in existing or new purchase contracts along with the need for emerging or developing market scenario planning capabilities for potential cost fluctuation under certain currency devaluation. The implication is for changing product and finished goods distribution strategies in such affected countries and markets.