November 1, 2018 (see November 14 update below). Next updates: November 28 and December 5, 2018. Visit Search to look at past issues of World Currency Observer (brochure edition).

After a sharp decline in the last 2 weeks of October, the Mexico peso moved down by 8.4% on the month against the US$, leaving it down by 4.4% since this time last year. The Iceland króna fell by 10% in October against the US$, and is down by more than 15% since this time last year. The Jamaica dollar rose by nearly 5.5% on the month against the US$, leaving it down by nearly 2% since this time last year. The Haiti gourde was down by 2.4% on the month against the US$ The Brazil peso rose by 7% in October against the US$, and the Argentina peso was up by nearly 6.5% - the Colombia peso fell by 7% in October. In a month with several headline developments with regard to BREXIT negotiations between the United Kingdom and the European Union, there was not a large difference in the movements of the two currencies, with both down by around 2.5% in October against the US$. The Sweden krona is down over 9% against the US$ since this time last year. In a month when European currencies were uniformly weaker against the US$, the 9% rise by the Turkey lira against the US$ stood out (up more than 11% against the Euro), leaving it down by 44% against the US$ since this time last year. The Poland zloty was down by 4% against the US$ in October. The Albania lek was up by 1.5% on the month against the Euro, and up by 6% against the Euro since this time last year. After a month with little movement by the Russia rouble against the US$, it is down by more than 13% against the US$ since this time last year. The Yemen rial fell by a further 16% against the US$ in October, after a 17.5% decline in September. The Iran rial fell by 9% against the US$ in October, and the Israel shekel fell by nearly 3%. The Madagascar franc fell by 5.5% against the US$ in October, and is now down by more than 12% since this time last year. The Zambia kwacha fell by nearly 14.5% on the month, while the Rwanda franc was up by more than 1%. The Seychelles rupee also move up against the US$ in October. The Angola kwacha declined by nearly 12% in October against the US$. The South Africa rand moved down by 4.5% against the US$ in October. The official rate for the Sudan pound was devalued early in October to match the black market rate, and is now around 29 per 1$US. The Philippines peso both moved up by around 1% against the US$ in October, and the Japan yen moved up slightly. The Burma kyat rose by nearly 1.5% against the US$ in October. The Sri Lanka rupee fell by more than 3% against the US$ in October, so it is down by more than 13.5% since this time last year.

The updated free trade agreement (formerly NAFTA, to become UMAC) among Canada, Mexico and the United States, includes Chapter 33, which says that ”Each Party should…achieve and maintain a market-determined exchange rate regime [and] refrain from competitive devaluation, including through intervention in the foreign exchange market.” Competitive devaluation is defined as: “actions undertaken by an exchange rate authority of a Party for the purpose of preventing effective balance of payments adjustment or gaining an unfair competitive advantage in trade over another Party.” (Regulatory and supervisory activities are exempted from this clause). The foreign exchange market definition is not confined to within the country: “ Foreign exchange market means a market, wherever located, in which participants can purchase or sell foreign exchange.” The agreement states that “[each] Party should inform promptly another Party and discuss if needed when an intervention has been carried out by the Party with respect to the currency of that other Party.” There are several references to roles to be played by the IMF, notably that “[each] Party confirms that it is bound under the Articles of Agreement of the IMF to avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”. There is also a reference to “the targeting of exchange rates for competitive purposes” in an Article laying out when one party may request bilateral consultations to raise matters of concern. The chapter provides several avenues for putting pressure on the three countries to follow through on exchange rate commitments, including the establishment of a Macroeconomic Committee to meet each year to review each country’s policies and practices, the possibility of enhanced surveillance by the International Monetary Fund if bilateral consultations don’t work out, and recourse (in some circumstances) to the dispute settlement mechanism of the new agreement.

The new NAFTA agreement also has a new non-market economy clause, which may finds its way into future trade agreements, and will affect the ability of Canada/Mexico to implement future free trade agreements with other countries, notably China. The clause states that “At least 3 months prior to commencing negotiations, a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country. For purposes of this Article, a non-market country is a country that on the date of signature of this agreement at least one Party has determined to be a non-market economy for purposes of its trade remedy laws and is a country with which no Party has a free trade agreement.. There are at least two definitions of non-market economy at play here, by the World Trade Organisation and by the United States Department of Commerce. The WTO “non-market economy” designation is part of the WTO criteria for determination of when a country is assessed as dumping its products in another country (selling below production costs and/or fair market value), and can apply, in their own words, “in the particular situation of economies where the government has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State.” The United States Department of Commerce issued a formal ruling in October 2017 designating China as a non-market economy, using the definition in United States legislation (which is of interest to WCO, partly because one criterion is the convertibility of a country’s currency), and the European Union has a non-market economy designation for China using its own definition – China disputes these designations.

November 14, 2018 update

WCO has been exploring the currency situation in Zimbabwe, in light of the "ring fence" event of October 1/18, and benefiting from day-by-day currency values documented by ZimBollar. To start at the beginning: the Zimbabwe dollar was eliminated in April 2009 in the wake of a hyperinflation (extremely high inflation due to the over-issuance of currency), so the country was dollarized, a generic term meaning that a wide range of foreign currencies (including the Botswana pula) were acceptable as payment for goods, but with prices posted in US dollars. But, as can happen in a dollarized country with net outflows of foreign currency, a shortage of money for in-country transactions occurred, so the government issued what it called "bond note" currency, denominated in US$, starting in November 2016. This led immediately to two US$-denominated prices for all goods and services (US dollar prices, and bond money US$ prices), which then rapidly evolved to a third US$ price, based on payments made by bank cards backed by US$ deposits in banks, referred to as RTGS funds (based on the technical term used by Zimbabwe banks for US$ funds traded among themselves). So, every good and service in Zimbabwe has had three US$ prices (US$ cash, bond money cash, and RTGS bank card), not to mention other prices when the merchant accepts other currencies, such as the Euro. The US$ cash price has been the lowest price, followed by the RTGS bank card price (based on US$ deposits into banks on which, incidentally, the government placed withdrawal restrictions), and the highest price has been the bond money price (the above-mentioned ZimBollar site has been tracking and publishing these values). What happened on October 1 was that the Zimbabwe government indicated that withdrawals of RTGS deposits would be paid to depositors in less-valuable bond money US$, despite the fact that the deposits had initially been made in US$. Besides the loss on already existing deposits, there was a halt in US$ bank deposits, and the emergence of a large US$-for-bond money black market, illegal (criminal offence) in Zimbabwe (the government has tried been pursuing and arresting foreign exchange dealer participants in the black market). Also to be mentioned is a benchmark reported by ZimBollar (developed by Steve Hanke), which is the ratio of the US$-value-in-Zimbabwe (Harare stock exchange) of OMIR (an insurance company) shares against their price on the London stock exchange (UK pounds converted to US$ at the market exchange rate). The OMIR ratio is currently around 3 (in-Zimbabwe US dollars) to 1 “real” US dollar (it was less than 1.5 before October 1, but then spiked up to a peak of over 6 in the following week, before settling back to the current ratio). The OMIR ratio of close to 3 compares with ratios of around 2.25 to the US dollar for bank money and bond money.

(World Currency Observer will next be updated on November 28 and December 5, 2018. Visit Search to look at past issues of World Currency Observer (brochure edition).)