February 2, 2021 (see February 17 update below). Next update: March 2, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

(The Covid-19 pandemic continues, with the economic impact made more tolerable by the rollout of vaccines in various countries). The Mexico peso fell by 2% against the US$ in January. The Jamaica dollar gave back its 3% December 2020 rise against the US$, falling by 3% in January 2021, and is down 5% since this time last year. The Haiti gourde fell by 2.5% in January against the US$. After generally rising against the US$ in December 2020, South America currencies mostly fell in the first month of 2021. The Chile peso is up by 7% against the US$ since this time last year. The Euro fell by 1% against the US$ in January 2021, but is still up by 10% against the US$ since this time last year. The United Kingdom pound was up by 2% against the Euro in January, but is down by more than 4% against the Euro since this time last year. The Macedonia dinar fell by 1.5% against the US$ in January, and is up 9% against the US$ since this time last year. The Russian rouble fell by 3.2% against the US$ in January 2021, and the Georgia lari fell by 1%. The Ukraine hryvnia was up by 1% in January against the US$, and is down by 13% since this time last year. The Iran riyal rose by 6.5% against the US$ in January 2021, while the Iraq dinar fell by 3%. The Israel shekel fell by 2.5% in January, but is up by 5% against the US$ since this time last year. The Cabo Verde escudo fell by 1% against the US$ in January 2021, but is up by 9% against the US$ since this time last year. The Mauritania ouguiya is up by 3% against the US$ since this time last year. The South Africa rand fell by 3.5% against the US$ in January 2021, while the São Tomé and Príncipe dobra was up by 3%, and rose by 9% since this time last year against the US$ (see below). The China yuan went up by 1.5% against the US$ in January 2021, and is now up 7% since this time last year - The South Korea won is up 6% against the US$ since this time last year after a 3% decline in January. The Myanmar kyat is up by 9.5% against the US$ since this time last year. The Sri Lanka rupee fell by 2.5% against the US$ in January 2021. Major commodities which are down in their US$ price since this time last year include oil, coal and cocoa, but the prices of all of these commodities rose in January. World tin prices and maize prices rose sharply in January 2021. There was some end-of-month excitement in silver markets, with word that Reddit investors, which have shown muscle in U.S. stock markets, may target silver on the buy side.

One direction indicated by the new United States administration (Biden) with international trade/investment (and ultimately exchange rate) implications is contained in written and oral submissions by the new U.S. Treasury secretary (Yellen) to the United States Senate (finance committee). Asked if a trade agreement with Taiwan would be a U.S. priority, the response was: “President Biden has been clear that he will not sign any new free trade agreements before the U.S. makes major investments in American workers and our infrastructure. Our economic recovery at home must be our top priority. This does not mean that President Biden will not pursue a robust trade agenda. If confirmed, I will work with President Biden to reach out to our allies, rebuild bridges, and pursue trade agreements that support American prosperity and put workers first”. WCO has lost count of how many countries have read this remark and interpreted it as indicating a halt in progress on trade agreements involving the United States – two examples are Kenya and, most widely noted, the United Kingdom, which needs a post-Brexit trade agreement with the United States. And, it should be noted that this indicated direction by the United States is not really an example of a post-pandemic change in the world. It is, more accurately, a continuation of a new direction for trade agreements sketched out by the previous U.S. administration (Trump).

The São Tomé and Príncipe dobra (population is 220 thousand, and geographically it consists mainly of two islands around 450 km off the west coast of Africa) moved up strongly in the first month of 2021. Looking over the entire year of 2020, São Tomé and Príncipe exports increased and, combined with a reduction in imports related to the effects of the Covid-19 pandemic in the country, there was an improvement in the balance of payments and, even with the strength of the dobra in 2020 (up by 6% against the US$), the level of foreign exchange reserves improved so that they are above the widely recognized benchmark of 3 months of imports. Wages have fallen behind the inflation rate (around 9% per annum), and a major strike was called at the end of January by workers at Agripalma, which produces palm oil for export-employees are looking for wage increases of 100 per cent. The central bank governor says that inflation is likely to increase in 2021. São Tomé and Príncipe received a donation of $200 thousand from the International Fund for Agricultural Development at the end of December, said to be connected with food self-sufficiency.

The Lebanon pound is around 9000/1$US in parallel foreign exchange markets - it was at around 3900 last June - and unofficial estimates put the Lebanon rate of inflation at more than 100 per cent. The semi-official exchange rate quoted by the Syndicat des agents de change to the media in Lebanon is 3900 pounds to buy 1$US. The central bank is indicating an official exchange rate of 1507.5/1$US.

February 17, 2021 update

Progress on Covid-19 vaccine production and distribution in developed countries has revived talk that it is time for governments to start adjusting their spending and taxation in anticipation of a post pandemic world (the first bout of such talk, back in the later summer of 2020, was silenced by the strength of the second wave of Covid-19 cases in the autumn of 2020). Many medical people monitored by WCO have made statements (e.g., talk about a possible third wave, despite vaccine distribution in many parts of the world) which would imply that fiscal action at the present time, in anticipation that the pandemic is close to ending, is still premature. An excerpt from an IMF report (February 12) on East Caribbean countries could apply to anywhere in the world: “The regional public debt target of 60 percent of GDP by 2030 has served as an important fiscal anchor for the Eastern Caribbean Currency Union. However, given the demands and constraints imposed by the pandemic, meeting the target is no longer feasible for several countries in the region without drastic fiscal consolidation, which would be ill-advised as it would both slow the recovery from the pandemic and constrain long-term growth prospects through scarring. Postponing the debt target by five years could balance the creation of near-term fiscal space needed to support the economic recovery with the confidence-boosting effects of a firm fiscal anchor. The pushing out of the debt target, however, puts the onus on countries in the ECCU to further enhance their fiscal responsibility frameworks to boost market confidence. In particular, the adjustment of the regional debt target should be supported with a package of reforms, including regional common standards and arrangements to guide national fiscal responsibility frameworks, a regional fiscal oversight body, peer reviews, and incentive mechanisms to ensure compliance and reap the benefits from lower government borrowing costs.” On the monetary policy/exchange rate side, the ECCU is constrained in any possible actions because of its currency board arrangement, with foreign exchange reserves maintained at around 100 per cent of the base money supply, in support of a fixed exchange rate of 2.7 East Caribbean dollars per 1US$. Other countries around the world, which mostly do not have currency boards, are nonetheless constrained in their interest rate policy by the simple fact that their inflation-adjusted interest rates are mostly close to zero. Another excerpt from the IMF paper: “The ECCB should keep a robust backing ratio by continuing to strictly limit credit provision. The backing ratio has remained in the range of 95-100 percent, which has lent credibility to the quasi-currency board arrangement. Given the uncertainty concerning the evolution of the pandemic, the authorities should closely monitor foreign exchange movements and prepare scenario-based policy responses. In addition, the lack of timely dissemination of external sector statistics hinders the effectiveness of external sector assessments and policymaking. Accordingly, more resources should be permanently dedicated to external sector statistics at the national and regional levels. ”

(World Currency Observer will next be updated on March 2, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition). For permission-to-quote enquiries, e-mail World Currency Observer at WCO@briargreen.com.)