Neil Davies, Head of Trading at PlutusFX, on a new geopolitical issue.

The Lithuanian Lita has weakened over the last couple of weeks, from 2.47 USD/LTL to currently stand at 2.51.

Movements of the Lita have continued to mirror that of the Euro, being pegged to the single currency at a rate of 3.4528 litas to the Euro, which it hopes to soon join. This week has seen increasing vocals from the state that is still, economically at least, dependant on Russia. The Crimean crisis has brought to the fore its own issues. The Lithuanian energy Minister has called on the US Senate to speed up their exporting of natural gas to Europe, to ease the political price that his country is paying for being entirely dependent on Russian gas supplies.

 

The Lithuanian Government last year approved a plan to adopt the Euro, following in the footsteps of both Estonia and Latvia, but is prevented from doing so as it has not yet met all the economic criteria necessary to do so. Both budget deficit and inflation have been the bug bears standing in their way, both of which are hindered by the 30% premium that Lithuania are paying for their gas.

If the USA means to hurt Russia for its expansionist actions, then then the exporting of natural gas could be an ideal tool as it is estimated that this could depress Russian gas revenues by 30% over the next 5 years and more longer term, clearly helping Lithuania on the way.

However, it will certainly take more than just a few litres of gas for the Lithuanians to be rid of the Lita as the problem for Lithuania is the time this would take if they want to change the Lita for the Euro before the hundredth anniversary of the Litas introduction in 1922, when it replaced the ostmark and ostruble post World War I.

 

The contents of this commentary are for information purposes only and it is not intended as a recommendation to trade. The opinions are those expressed by the author and should not be taken as advice. PlutusFX will not be held responsible from any loss or damage arising from any action taken following the use of this information.

 

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