September 6, 2017 (see September 20 update below). Next update: October 4, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro was up by 1% against the US$ in August, and is up a little more than 6% against the US$ since this time last year. There was little change in both the Canada dollar and the Mexico peso in August, although both are up by around 4.7% since this time last year. The Iceland króna was down just over 1% against the US$ in August, but is still up nearly 11% since this time last year. The Chile peso was up nearly 3.5%% against the US$ in August, the Colombia peso was up nearly 2%, and the Uruguay peso was down 1.7%. The Argentina peso rose by 3% against the US$ in August. The UK pound weakened by 1.2% against the US$ in August, and is now at 1.297US$/1 pound, a little weaker than the US$1.30/1 pound threshold, and was even weaker against the Euro in August (BREXIT talks with EU are continuing). East Europe non-Euro currencies were all up against the Euro in August. The Turkey lira rose against the US$ by nearly 2.5% in August, but is now around 16% weaker against the US$ than this time last year. The Poland zloty and the Czech Republic koruna are up around 5% against the Euro since this time last year, and around 10% stronger against the US$. The Hungary forint also showed similar strength. The Uzbekistan som fell by around 3.5% against the US$ in August, and is now 41% weaker against the US$ than this time last year. The Russia rouble is now 9.5% stronger against the US$ than this time last year, and moved up 1.2% in August. The Yemen rial fell by 20% against the US$ in August (Yemen is in the midst of a civil war). African currencies were generally up against the US dollar in August - the big exception was an 11% drop in the Nigeria naira against the US$ in August. The Tunisia dinar weakened slightly in August against the US$, and is down nearly 11% since this time last year. The China yuan moved up by 2.7% against the US$ in August, representing a massive movement by an important currency (a big contributor is said to be a turnaround in international capital flows, with the first net inflows in several years). The New Zealand dollar weakened by nearly 5% against the US$ in August. The Japan yen moved up a little, and is around 6% weaker against the US$ than a year ago.

Country differences in inflation rates are the primary influence on long run movements in exchange rates (which makes them not very useful as predictors right now for developed countries, because so many countries have inflation rates which are nearly the same, mostly in the 0 to 2% range, so that those trying to explain movements in exchange rates must look to other factors). But inflation rates are currently the object of particular attention by those who argue, in line with prevailing opinion, that it is time for interest rates to be “normalised” in developed countries, translating into interest rate increases of approximately 2% from their current levels. An example of a country in this situation is the Czech Republic, which is at full employment (unemployment rate of 2.9%) and yet has inflation of just 2.5%. The Czech Republic central bank raised interest rates by .25% early in August and will likely raise them twice more this year, adding up to a total increase of .75%, which the central bank forecasts will be consistent with inflation dropping down below the target rate of 2%, a goal to which there will be a big contribution from the strength of koruna against the US$ (up over 10% since this time last year) and against the Euro (currently at 25/1 Euro, stronger than the desired level of 27). There is an element of perplexity among economic commentators trying to understand why consumer prices and wages have not been rising more strongly with the approach of full employment. Commentators who have shifted away from a focus on consumer price indexes to look at the underlying commodity markets to understand inflation developments have found a mixed story. Gold prices are about the same as they were at this time last year (up nearly 5% since this time last month). Copper prices are up nearly 50% since this time last year, and there are similar surges in prices of many other types of industrial metals. On the soft commodity side, cotton and rubber prices are up sharply since last year, but are nowhere near to matching the movements in metals prices. Soft tropical edible commodity prices (such as cocoa, sugar and cocoa) are down by large amounts since this time last year and this time last month. Agricultural goods from non-tropical climates (maize, soybeans, wheat) are also down since this time last year, but these movements have been offset to some extent by some recent price increases. Oil and (North American) natural gas prices are up by 5-10% since this time last year, but the petroleum market impact of the (post-August 25) devastation of Hurricane Harvey in Texas has been most noticeable in increases in retail gas (petrol) prices in North America (disruptions to refineries), during a month in which North America oil prices fell. (The United States is beginning to export natural gas to Europe.) The prices of tropical spices, such as black pepper (the most traded of the spices), are down substantially since this time last year, and there have been talks among pepper producing countries about measures to stabilise pepper prices.

In India, critics are now saying, based on recently reached figures from the Reserve Bank of India (central bank), that the call-back of large currency rupee notes, requiring that they be deposited in financial institutions or converted to newer notes, did not achieve its goals of evaporating the proceeds of illicit economic activities and/or revealing the identities of tax evaders, despite the disruption to the economy. Figures released by the RBI have been interpreted as suggesting that 99% of these notes have been accounted for. It is suggested that revelation of tax evader identities was masked through conventional tax evasion and avoidance techniques, such as corporate structures and concealed purchases, not to mention bribes, so that there was no need for holders to destroy their rupee banknotes. (Even so, the India call-back has been a big step towards bringing them into the formal economy.) The India rupee is at around 64/1US$, up by 4.5% since this time last year.

September 20, 2017 update

The evolution of the Euro in Europe has influenced perceptions of common currencies for Africa. At the beginning of September, central bank governors of some of the East African Community (Uganda, Kenya, Tanzania, Rwanda and Burundi) made comments suggesting that they are taking, in the context of movement towards greater economic integration, additional measures in pursuit of the goal of a common currency in the Africa Great Lakes region. The core of common currencies in Africa is the CFA franc, of which there are the two versions, which are the west Africa CFA franc and the central Africa CFA franc. The two currencies are distinct, but both of are fixed against the Euro at 655.957 CFA francs/1 Euro. The history is that, after former British and French colonies became independent in the 1950s and 60s, both groups adopted common regional currencies, whose values were anchored to either the French franc or the British pound sterling. While the French-established CFA franc has continued (with a lot of financial support from France, and with the anchor changed from the French franc to the Euro in 1999), the British bloc broke up in the 1960s at the same time as the revaluations of the English pound, and former British colonies each adopted their own currencies, all of which have highly distinctive names (e.g., the leone is the currency of Sierra Leone). Looking at major African regions one by one - in central Africa, the common currency is already, pretty much, the central CFA franc; Burundi and Rwanda are part of the above-mentioned east Africa group, and this leaves Angola and the Democratic Republic of the Congo as the principal "outs" in central Africa. The movement towards a common currency is more concrete in west Africa. The west Africa goals and implementation plan have been clearly laid out (although the timetable has been delayed), with the first goal being to unite the west Africa non-CFA countries into a common currency (these are Ghana, Guinea-Conakry, Liberia, Nigeria and Sierra Leone) - after that, the next stage is to be to unite this group, along with the west CFA franc group, into a single west Africa currency, to be called the Eco. Among the challenges is that the west Africa non-CFA franc countries (their common body is the West Africa Monetary Institute) are perceived as not having enough economic similarities nor joint institutional structures to be a "natural" common currency area, although all of these countries have strong natural resource bases – this is one reason why Cape (Cabo) Verde, which is part of West Africa economic groupings, is not to be part of the West Africa currency. Looking at Southern Africa, another important currency group in Africa is among members of the South Africa customs union (free trade plus common external tariffs), established in 1910. Within this group, the currencies of Lesotho, Namibia and Swaziland are all pegged to the South Africa rand. The other member of the South Africa customs union, the Botswana pula, is not pegged to the rand, and moves independently against the rand. In northern Africa, one of economic forum is the Arab Maghreb Union, comprising Algeria, Libya, Mauritania, Morocco and Tunisia, which has no common currency goal. Lastly, it should be mentioned that an explicit goal of the African Union, comprising all the countries of Africa, is for a common African currency.

(World Currency Observer will next be updated on October 4, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).)