4.5 Exchange Rates Questionbank

Recent Economic Trends in Chile

Chile, located along the western coast of South America, is widely regarded as one of the region’s most stable and prosperous nations. With a population of around 19 million, the country boasts a successful track record in macroeconomic management, marked by consistent economic growth and relatively low government debt levels. However, ongoing shifts in global trade, fluctuating copper prices, and recent policy reforms have brought new challenges to Chile’s economy.

In 2022, Chile recorded an average monthly wage of approximately US$600, though the cost of living in major urban centers such as Santiago continues to rise. To maintain price stability, the Central Bank of Chile has long operated an inflation-targeting regime, typically aiming for annual inflation close to 3%. Yet external pressures—like disruptions to global supply chains—pushed the inflation rate up to 7.2% in 2022. Unemployment remains a pressing issue; following a peak of 10.7% in 2020 when economic activity contracted, joblessness has gradually declined as the economy recovers.

Chile’s economic identity is strongly tied to mining, particularly copper, which accounts for a significant proportion of export revenues. In 2022, approximately 45% of total exports came from copper and other minerals. While copper has been a major driver of economic growth, economists and policymakers increasingly emphasize diversification to protect against commodity price volatility. The government has also expanded support for agricultural and service industries, promoting increased global competitiveness through various trade agreements with North American and Asian partners.

On the fiscal side, Chile historically prided itself on low government debt, yet debt levels have slowly risen to 37% of GDP by 2022. This reflects higher spending on social programs, including public healthcare and education subsidies. Policymakers are attempting to strike a balance between prudent fiscal management and ensuring equitable access to basic services. In the microeconomic arena, Chile introduced an excise tax on sugar-sweetened beverages to discourage unhealthy consumption and reduce negative externalities tied to rising obesity rates.

Foreign direct investment (FDI) flows remain relatively stable in non-mining ventures, particularly in renewable energy sectors such as solar and wind. The government has enacted regulatory changes that encourage private-sector participation in green investments, hoping to lessen reliance on fossil fuels. Analysts predict that over the next decade, renewable energy might comprise up to 30% of Chile’s energy mix, helping the country manage environmental externalities while sustaining long-term economic growth.

Despite Chile’s liberalized trade regime, some domestic industries face competitiveness hurdles from global market fluctuations. The peso’s exchange rate is influenced by copper prices. Therefore, this has spurred officials to pursue greater diversification.

Income distribution remains a topic of debate. Chile has recorded improvements in its Gini coefficient over the past decade, yet inequalities persist—especially in rural areas where access to education and healthcare lags behind that in urban regions. Government initiatives to raise the minimum wage and invest in vocational training signal attempts to address income disparities, which some critics argue need more comprehensive policies.

Private enterprise plays a central role in Chile’s leading export industries. In the mining sector, large multinational firms partner with domestic companies, creating jobs and contributing to government revenue. Nevertheless, critics point to environmental costs from mining activities and the need for stricter regulations to ensure sustainable resource use. Many also question whether enough investments are being channeled into non-traditional sectors like technology and advanced manufacturing—areas widely seen as key to sustainable future growth.

Moving forward, Chile’s policy landscape continues to evolve. Discussions about strengthening social safety nets, investing further in green energy, and maintaining a competitive exchange rate occupy center stage. The government’s approach to promoting inclusive development includes balancing social spending with structural reforms that attract both domestic and foreign investors. Ultimately, Chile’s ability to diversify its economy beyond copper and ensure equity across various regions will determine its long-term path to stable and inclusive growth.

Table 1: Chile’s Macroeconomic Indicators (2019–2022)

Table 2: Chile’s Export Composition (2022)

Cambodia’s Economic Transition

Cambodia, located in Southeast Asia, has experienced significant economic transformation over the past decade. Prior to 2018, its economy relied heavily on the garment sector and agriculture, but more recently, rapid growth in tourism, microfinance, and construction has contributed to gross domestic product (GDP) expansion, which averaged about 6.8% annually from 2018 to 2021. Despite this robust growth, pockets of poverty remain, and the government has promoted both infrastructure development and targeted social welfare policies to reduce rising income inequality.

One of the main drivers of growth is the garment industry, accounting for over 65% of total merchandise exports in 2021. However, environmental concerns have arisen due to waste disposal and water pollution from garment factories. In response, the Ministry of Environment has tightened factory inspection procedures and is considering a tradable (emissions) permits scheme for large industrial polluters. Although Cambodia’s capacity to implement environmental regulations is modest, proponents argue that clearer standards could reduce negative externalities and encourage industries to adopt greener technologies.

Tourism has also become a vital component of the economy, comprising about 26% of total service exports before recent global downturns affected international travel. In 2021, over 1.3 million visitors arrived, a sharp decline compared to prior years, but the authorities anticipate a rebound as global travel normalizes. To diversify income, the government supports small and medium enterprises (SMEs) through microfinance programs, focusing on rural households engaged in hospitality or artisanal crafts. Critics maintain that high microfinance interest rates can trap borrowers in debt, underscoring the need for regulatory oversight and financial literacy programs.

Monetary policy in Cambodia is complex, as the local currency (riel) circulates alongside the US dollar. Over 70% of transactions are dollarized, reducing the National Bank of Cambodia’s ability to influence the money supply. Nonetheless, the government has periodically intervened in currency markets to limit volatility in the riel exchange rate. Inflation rates declined from a peak of 3.8% in 2019 to 2.7% in 2021, partly due to global factors and stable domestic demand.

Fiscal policy has emphasized infrastructure, particularly rural roads and modernizing the energy grid. Officials claim these investments will enhance productivity and attract foreign direct investment (FDI), which reached US$3.2 billion in 2021. However, concerns persist about rising external debt levels, mainly financed by bilateral loans. The government maintains some subsidies on electricity and fertilizer to support agricultural producers, but budget pressures have led to debates over gradually phasing out these price supports to fund more targeted social programs.

In terms of international trade, Cambodia benefits from tariff reductions under the Association of Southeast Asian Nations (ASEAN) framework. Recent bilateral trade agreements with China and regional economies are expected to further increase Cambodia’s exports of rice, textiles, and electronics. Yet, local businesses claim that non-tariff barriers, such as administrative requirements for exporters, hinder their competitiveness. Advocates call for streamlined procedures and better infrastructure at ports, which could lower trade costs and boost export diversification.

Income inequality, reflecting urban-rural disparities, remains a concern. The official Gini coefficient stood at 0.34 in 2018, then rose slightly to 0.36 by 2021. The government introduced a minimum wage in the garment sector to raise real incomes for laborers, sparking debates on whether higher labor costs might deter investment. Proponents argue that robust growth and rising productivity can accommodate moderate wage increases without jeopardizing competitiveness. Meanwhile, rural regions continue to rely on agriculture, and recurring floods pose challenges to harvests.

Going forward, Cambodia’s economic trajectory depends on balancing social welfare with fiscally sustainable spending. Policymakers must weigh the costs and benefits of further debt accumulation, the possible implementation of environmental taxes, and persistent attempts to manage the exchange rate. If the nation effectively addresses its infrastructure gaps and diversifies away from garments and tourism alone, Cambodia could see inclusive, long-term development.

Table 1: Cambodia’s Selected Macroeconomic Indicators (2018–2021)

Table 2: Cambodia’s Export Distribution by Sector (2021)

Economic and Social Developments in Hong Kong

Hong Kong is an international financial center located on the southern coast of China. Renowned for its open trading environment and large foreign exchange reserves, Hong Kong has historically pursued free-market policies to spur economic growth. However, recent challenges, including sluggish global demand and ongoing demographic shifts, have contributed to concerns about rising income inequality and persistent poverty. The government reports that 15.8% of the population (over 1.1 million people) live below the official poverty line, which is defined relative to median household income. In addition, Hong Kong’s Gini coefficient remains among the highest in developed economies, at around 0.539 in 2021.

Hong Kong’s role as an entrepôt for Chinese exports and as a major financial hub has driven its economic growth over several decades. Services make up close to 93% of GDP, while manufacturing accounts for only 1% of GDP. The region’s unemployment rate has typically been low, hovering around 2.9% in normal times. However, certain sectors particularly tourism and hospitality experienced a downturn due to global movements in travel restrictions and changing consumer behavior. This contributed to a slight pick-up in the overall unemployment rate to 4.7% by 2021.

The government maintains a near-balanced budget, attributable in part to revenue sources such as profits tax, stamp duties on real estate transactions, and land lease sales. Nevertheless, there is growing debate on whether Hong Kong’s minimal social welfare spending is sufficient to address structural poverty. Some argue that targeted subsidies and cash transfers are needed to prevent low-income households, especially the elderly, from slipping into deeper poverty. Indeed, the government launched a pilot scheme in 2020 offering housing vouchers to households below 60% of median income, claiming initial success in reducing homelessness by 15%.

Hong Kong also faces macroeconomic challenges. Real GDP growth decelerated from 3.0% in 2018 to -1.2% in 2019, before contracting again in 2020 due to global economic disruptions. By 2021, real GDP marked a modest recovery of 2.5%. Inflation remained relatively low, averaging 1.6% in 2021, owing partly to subdued consumer demand. At the same time, the Hong Kong Monetary Authority (HKMA) employs a currency board system pegging the Hong Kong dollar to the US dollar, which limits the use of independent monetary policy instruments.

In response to developmental concerns, the government has initiated programs focused on skill enhancement and vocational training to prevent the formation of a “poverty cycle,” where poor access to education and health-care perpetuates low wages and limited economic mobility. A new Child Development Fund aims to provide means-tested asset-building accounts for underserved youth, while strong emphasis is also being placed on technology upskilling and English language proficiency to enhance employability in service-oriented sectors.

Despite these measures, Hong Kong’s open economy leaves it exposed to global trade fluctuations. Exporters face falling demand from some of Hong Kong’s key markets, even as rising regional competition for port and logistics services puts additional pressure on trade revenues. On the other hand, foreign direct investment (FDI) inflows rose to HKD 1.1 trillion in 2021, reflecting sustained investor confidence in Hong Kong’s legal framework and financial markets. Policymakers must navigate a tight balance between preserving Hong Kong’s “small government, big market” tradition and addressing socioeconomic gaps that threaten long-term development.

Below are selected data illustrating the economy’s performance and its social challenges.

Table 1: Hong Kong’s Selected Macroeconomic Indicators (2018–2021)

Table 2: Poverty and Development Indicators for Hong Kong

Economic and Social Developments in Malta

Malta, a small island nation in the Mediterranean, has evolved from a predominantly manufacturing-based economy into a highly service-oriented hub, with tourism, financial services, and information technology now accounting for a large share of GDP. Over the past few years, the Maltese government has pursued policies to diversify the economy further and address pockets of poverty still affecting certain communities, including migrant and low-skilled workers.

One key challenge has been balancing rapid economic growth with equity and social cohesion. Although Malta’s overall unemployment rate is relatively low, underemployment and precarious work remain concerns, especially in tourism and seasonal industries. Furthermore, recent spikes in global energy prices have increased Malta’s cost of living, prompting the government to introduce targeted subsidies on utilities for low-income households, as well as to expand vocational training programs in collaboration with the private sector.

Malta’s central bank continues to play a vital role in stabilizing the economy. While the Eurozone membership means that monetary policy is largely determined by the European Central Bank (ECB), the Maltese authorities coordinate closely with EU institutions to manage challenges around inflation and competitiveness. Foreign direct investment (FDI) has grown steadily, with multinational companies attracted by Malta’s strategic location, English-speaking workforce, and links to European and North African markets. However, some observers argue that the benefits of FDI have not yet trickled down to vulnerable groups, leaving inequalities in wage distribution.

Additionally, the government has taken steps to expand Malta’s export portfolio beyond the tourism sector. Initiatives to promote advanced manufacturing, pharmaceuticals, and maritime services are part of an ongoing strategy to reduce reliance on seasonal tourism flows. More recently, Malta signed agreements with trade partners to facilitate cross-border e-commerce, and there has been discussion of setting up special economic zones to encourage higher-value-added exports.

Despite its developed status, Malta still grapples with pockets of poverty. Official estimates suggest that 12% of the population lives close to the at-risk-of-poverty threshold. In certain urban neighborhoods, individuals face low educational attainment, limited job prospects, and rising housing costs. To break the intergenerational transmission of poverty, the government has introduced a pilot social welfare reform focusing on conditional cash transfers and expanded early childhood education aimed at lifting families out of the poverty cycle.

In line with EU sustainability targets, Malta also invests in greener practices. While still reliant on imported fossil fuels, recent years have seen an increase in renewable energy projects such as solar farms. Authorities point out that a transition to green energy can reduce pollution and create jobs, though critics worry about initially higher costs being passed on to consumers.

Overall, Malta’s economic success stands alongside ongoing challenges to ensure inclusivity. Continued attention to education, infrastructure, trade diversification, and targeted welfare policies will be key to sustaining growth and raising living standards across all segments of the population.

Table 1: Selected Macroeconomic Indicators for Malta (2019–2022)

Table 2: Social and Development Indicators for Malta

Japan’s Economic Transition and Challenges

Japan, located in East Asia, is the world’s third-largest economy by nominal GDP. Despite its long-standing reputation for technological innovation and efficient manufacturing processes, Japan faces persistent challenges tied to demographic shifts, high public debt, and intensified global competition. According to government estimates, Japan’s population declined from about 127 million in 2012 to around 125 million in 2022, placing upward pressure on social security spending. As of 2022, public debt stood at approximately 266% of GDP, reflecting decades of expansionary fiscal measures aimed at stimulating domestic demand.

The Bank of Japan (BOJ) has historically maintained an accommodative monetary policy to address deflationary pressures. Between 2019 and 2021, inflation hovered close to zero. However, in 2022, partly due to rising global energy prices, consumer price inflation rose to 2.5%. Although this figure remains modest by international standards, any uptick in inflation poses questions about the sustainability of ultra-low interest rates, especially given Japan’s massive debt burden. Meanwhile, real GDP growth, which contracted sharply in 2020 amidst the COVID-19 pandemic (–4.5%), recovered to 2.0% by 2022, helped by a revival in exports and strengthening private consumption.

Microeconomic concerns have emerged over labor market rigidity and low productivity growth, particularly in the service sector. Labor shortages in sectors such as health-care and agriculture have become more pronounced as the population ages. While the government has implemented programs to encourage automation and foreign labor inflows, some industries remain challenged by outdated regulations. Additionally, small and medium-sized enterprises (SMEs) struggle with limited access to capital, restricting their ability to invest in new technologies that enhance productivity. Analysts also note that structural unemployment has risen in specific regions.

International trade remains crucial to Japan’s economic health, with exports of automobiles, electronics, and machine tools playing a central role. In 2022, exports reached US 700 billion (up from US 640 billion in 2020), reflecting partial recovery from pandemic-related disruptions. Imports also surged to US 710 billion, driven by higher energy costs and a weaker yen. While Japan continues to record a modest current account surplus, it has narrowed in recent years to 2.7% of GDP in 2022, down from 3.4% in 2019. Amid ongoing global uncertainty, the government promotes green investment to modernize industries and reduce dependence on fossil fuels, allocating around US$70 billion to renewable energy projects and clean technologies in 2022.

Environmental concerns have prompted policymakers to re-evaluate the nation’s energy mix. Fossil fuels still make up a large portion of electricity generation, although CO2 emissions declined slightly to 8.4 metric tons per capita in 2022 from 9.0 in 2019. Public-private partnerships in green technology such as hydrogen fuel cells and electric vehicle infrastructure aim to drive innovation, reduce external costs, and create export opportunities in emerging international markets. Critics argue, however, that high government spending on green initiatives further exacerbates Japan’s debt issues and raises questions about the efficiency of subsidies.

Future prospects hinge on policy coordination among various stakeholders-government agencies, the BOJ, and private enterprises. Proposals for market-based supply-side policies include labor market liberalization, corporate tax incentives for research and development, and structural reforms to foster competition in traditionally protected sectors. Yet implementation is complex, as political pressures often favor preserving entrenched interests, especially in areas like agriculture. The success of these reforms may determine whether Japan can transition to a more dynamic, inclusive economy without undermining fiscal sustainability.

TABLE 1: Japan’s Selected Macroeconomic Indicators (2019–2022)

TABLE 2: Japan’s Trade and Environmental Indicators

Australia’s Current Account Deficit and Economic Impact

In the second quarter of 2015, Australia’s current account deficit saw a significant increase, widening by around 5.8% from the previous quarter. This marked the steepest deterioration since the 2008 financial crisis, according to the Australian Bureau of Statistics (ABS), raising concerns about the overall health of Australia’s balance of payments.

The country’s current account balance has worsened considerably since its strongest position in 2011, largely due to the ongoing fall in prices for major exports such as iron ore, coal, and energy. This shift is particularly crucial as Australia’s economic reliance on liquefied natural gas exports continues to grow.

A Commonwealth Bank economist remarked that the era of income growth driven by high commodity prices has come to an end. The economist explained that “the continued deterioration in the current account reflects a significant reduction in purchasing power for Australian households and businesses, a trend that has become more evident over recent years.” Specifically, the decline in iron ore and coal prices has weighed heavily on export revenues and has slowed real gross national income (GNI) growth.

Falling export revenues are projected to have a negative impact on the government’s revenue expectations, potentially dimming hopes for a swift economic recovery.

While the volume of exports, particularly iron ore, is reaching new highs, the income generated by top exporters has been declining. Some economists worry that this trend could eventually push Australia into a recession, breaking its 24-year streak of economic growth.

The Australian dollar’s slight drop in value—down 0.4%—has done little to counterbalance this trend. The Reserve Bank of Australia has hinted at possible measures to further adjust the currency, which currently stands at around AUD 1 = USD 0.73.

The ongoing current account deficit has intensified calls for both government and business leaders to focus on productivity improvements. The Reserve Bank of Australia’s manager noted that productivity had been lagging for over a decade but had been overshadowed by strong export earnings up until 2013. As commodity prices fall, the underlying weaknesses in Australia’s trade balance and productivity growth are becoming increasingly evident.

Table 1 – Australia’s Trade Balance Data (2011 & 2015)

Table 2 – Australia’s Current Account Balance (2011 & 2015)

Economic Developments in Ivory Coast (Côte d’Ivoire)

Ivory Coast, located in West Africa, is one of the fastest-growing economies in sub-Saharan Africa. Its agriculture-based economy relies heavily on cocoa exports Ivory Coast produces about 40% of the global cocoa supply. In 2022, the government allocated US$1.2 billion towards rural electrification and expansion of transportation networks to connect cocoa-growing areas to export ports.

Over the past several years, real GDP growth has averaged around 5%, although inflationary pressures have started to rise, partly due to increasing global food and energy prices. In 2020, growth slowed to 2.2% as a result of global economic disruptions, but a rebound followed in 2021 and 2022 with growth rates of 5.0% and 5.7%, respectively. Despite this improvement, youth unemployment remains a concern, and underemployment in rural areas persists.

The government has implemented a price floor policy for cocoa farmers to stabilize incomes and encourage continued production. At the same time, foreign direct investment (FDI) in the manufacturing of processed cocoa products has been growing, as the authorities seek to move Ivory Coast up the value chain rather than relying on raw cocoa exports. However, some local firms worry about foreign competition and high operating costs, including limited access to efficient infrastructure and reliable energy supply.

To strengthen the country’s integration in global markets, policymakers have pursued regional trade agreements through the Economic Community of West African States (ECOWAS). Tariffs on agricultural machinery imports were reduced to encourage modernization in cocoa and coffee farms. Still, some environmental groups have raised concerns regarding deforestation tied to cocoa expansion. In response, the government has introduced stricter requirements for land use permits in forested areas, although critics argue that enforcement remains patchy.

Ivory Coast’s central bank is part of the West African Economic and Monetary Union (UEMOA), which pegs the CFA franc (XOF) to the euro. Inflation, historically low, reached 5.0% in 2022. Higher cocoa prices initially improved export revenues, but rising fertilizer and fuel costs risk undermining smallholder farmers. Meanwhile, the government’s capital expenditure on infrastructure is partly financed through external borrowing, raising the national debt-to-GDP ratio and sparking debates about debt sustainability.

Looking ahead, the government hopes to expand industrial processing of agricultural commodities, diversify into other export sectors such as cashew processing, and develop special economic zones. However, micro-level interventions such as improved rural credit access and extension services are still needed to ensure inclusive growth. Efforts to promote import substitution for certain food items are under discussion, including new support programs for rice production to reduce reliance on imports. On the social front, policies to tackle income inequality and underemployment are seen as key to ensuring the gains from growth are widely shared.

Below are two tables containing data for Ivory Coast:

Table 1: Ivory Coast’s Selected Macroeconomic Indicators (2019–2022)

Table 2: Selected Export Composition of Ivory Coast (2022 Estimates)

Economic Challenges and Opportunities in Armenia

Armenia is a landlocked country in the South Caucasus, bordered by Turkey, Georgia, Azerbaijan, and Iran. With a population of nearly 3 million, the nation has historically relied on agriculture, mining, and light manufacturing. In recent years, policymakers have sought to diversify the economy toward services, technology, and tourism. According to official estimates, nominal GDP reached approximately US$14.4 billion in 2021. Despite steady progress, Armenia continues to deal with structural issues including limited export routes and significant geopolitical constraints.

Between 2019 and 2022, Armenia’s real GDP growth fluctuated significantly, influenced by regional tensions and global economic shocks. Inflation typically remained below 4% until 2021, when it surged to 7.2% as global commodity prices rose and supply-chain disruptions took hold. The government has nonetheless focused on fostering macroeconomic stability through prudent fiscal measures. Targeted expenditures on public health, infrastructure, and education have been financed partly by external loans, raising debates on the sustainability of Armenia’s public debt.

The Central Bank of Armenia, responsible for implementing monetary policy and regulating the financial sector, adopted an inflation-targeting framework in 2015. This helped anchor inflation expectations, but recurring external shocks have tested the bank’s ability to maintain price stability. In 2022, unemployment stood at around 12.0%, reflecting both cyclical factors and structural rigidities in the labor market, such as skill mismatches. The government has pivoted toward enhancing vocational training programs and facilitating access to credit for small businesses to stimulate job creation.

Agriculture remains a key employer, constituting roughly 13% of GDP according to recent estimates. For several staple crops, including wheat and grapes, the government applies a minimum price policy intended to ensure farmers’ profitability. Critics argue that this measure may lead to overproduction, resource misallocation, and potential surpluses. Proponents maintain that it provides stability for rural households, especially during periods of price volatility. Additionally, there are ongoing discussions about phasing out broad-based agricultural subsidies in favor of more targeted interventions, with officials pointing to fiscal burdens and efficiency concerns.

Armenia’s economy continues to depend heavily on diaspora remittances, which have at times exceeded 10% of GDP. These inflows have buoyed consumption and domestic investment but also raise concerns about vulnerability to external downturns. As shown in Table 1, the Armenian dram (AMD) appreciated slightly against the US dollar in 2021 due to heightened remittance inflows. Some economists suggest that a stronger currency might hurt export competitiveness and lead to pressures on local manufacturing, while others view it as a sign of economic resilience.

In the international arena, Armenia has worked to improve access to regional and global markets. The country’s membership in the Eurasian Economic Union (EAEU) provides tariff-free trade with neighboring states, yet complicated geopolitical relationships pose a persistent challenge. Meanwhile, foreign direct investment (FDI) has been uneven, partly because of political uncertainty and regional conflicts. Officials are also promoting eco-tourism and IT-enabled services as avenues to diversify beyond traditional sectors, while discussions on environmental standards in industries like mining continue to garner public attention.

Looking ahead, policymakers face a difficult balancing act: raising living standards, fostering inclusive growth, and managing external vulnerabilities. The government has begun to pursue structural reforms aimed at strengthening institutions, formalizing the labor market, and attracting higher-quality investments. While economic analysts remain cautiously optimistic about Armenia’s medium-term outlook, success will likely hinge on stable fiscal and monetary policies, proactive steps toward export diversification, and judicious management of social programs. Table 2 highlights select socioeconomic indicators that underscore the scale of ongoing challenges and opportunities facing the country.

Table 1: Armenia’s Macroeconomic Indicators (2019–2022)

Table 2: Selected Socioeconomic Indicators for Armenia