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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

April 6, 2016 (see April 20 update below). Next update: May 4, 2016. Visit Search to look at past issues of World Currency Observer (brochure edition).

The general picture in March was that currencies were stronger all over the world against the United States dollar, although this masks considerable variation in how individual currencies have moved since this time last year against the US$ Worldwide oil prices were up 10% in March, and there were also rises on the month in a number of metals (such as tin, copper and zinc) and in many major agricultural commodities, including coffee, soybeans, wheat and rubber. The Euro and the Japan yen moved up against the US$ in March - the Euro by over 4%, and the yen up by 1.5%. Both of these currencies are stronger against the US$ than they were a year ago. In North America, the Canada dollar was up by more than 3% in March, and the Mexico peso rose by nearly 5%, but both are down against the US$ since a year ago. Currencies in South America rose against the US$ in March, especially the Brazil real, which was up by nearly 12%. (There is currently a vigorous political debate in Brazil on what spending and taxation decisions should be taken to lift Brazil out of its economic recession – the Brazil federal government, which is cutting spending, is opposed to strong stimulus measures). The Suriname dollar fell more than 20% in March against the US$. The United Kingdom pound was down up by more than 1% against the Euro in March, and the Sweden krona was up by around 1% against the Euro. The Russia rouble was up by nearly 11% on the month against the US$. The Egypt pound, which was floated in March, is down around 16% since a year ago. The South Africa rand was up nearly 9% in March, but is down around 25% since a year ago. The Seychelles rupee is down by more than 4% on the month. The Burundi franc was down nearly 4% in March, and is down 5% since a year ago. Asian currencies were mostly stronger against the US$ in March –in particular, the South Korea won rose sharply.

South Africa rand April 2016

The positions put forward on the appropriate level of the United States dollar by the leading candidates for President of the United State in the two major political parties are excerpted below. WCO observes that these positions reflect the fact that the politics of the dollar in the United States focus more on the impact on particular sectors, particularly manufacturing, with less concern than one might see in other countries on the impact of the level of the currency on the entire economy.

Hillary Clinton (Democratic Party). “Prevent foreign countries like China from abusing global trade rules, and reject trade agreements that do not meet high standards. Hillary will put American workers first when it comes to trade. She will stand up to foreign countries like China when they abuse global trade rules and take action against the theft – physical and virtual – of America’s inventions:… Crack down on foreign countries, like China, that cheat the rules. If foreign countries dump products on our markets, like China is doing right now with steel, Hillary’s administration will take countervailing action. She will appoint a new trade prosecutor to keep other countries honest. She will take on foreign countries that keep their goods artificially cheap by manipulating their currencies, and expand our toolbox to include effective new remedies to respond, such as duties, tariffs, or other measures. And Hillary opposes China’s efforts to be recognized as a “market economy,” which would defang our anti-dumping laws…Say “no” to new trade agreements that don’t meet her high bar – including the Trans-Pacific Partnership. Hillary will hit pause and say “no” to new trade agreements unless they create American jobs, raise wages, and improve our national security. After looking at the final terms of the Trans-Pacific Partnership agreement, including what it contains on currency manipulation and its weak rules of origin standard for what counts as a car that can get treaty benefits, she opposed the agreement because it did not meet her test. And she will hold every future trade agreement to the same high standard.

Donald Trump (Republican Party). “President Obama’s Treasury Department has repeatedly refused to brand China a currency manipulator – a move that would force China to stop these unfair practices or face tough countervailing duties that level the playing field. Economists estimate the Chinese yuan is undervalued by anywhere from 15% to 40%. This grossly undervalued yuan gives Chinese exporters a huge advantage while imposing the equivalent of a heavy tariff on U.S. exports to China. Such currency manipulation, in concert with China’s other unfair practices, has resulted in chronic U.S. trade deficits, a severe weakening of the U.S. manufacturing base and the loss of tens of millions of American jobs. In a system of truly free trade and floating exchange rates like a Trump administration would support, America's massive trade deficit with China would not persist. On day one of the Trump administration the U.S. Treasury Department will designate China as a currency manipulator. This will begin a process that imposes appropriate countervailing duties on artificially cheap Chinese products, defends U.S. manufacturers and workers, and revitalizes job growth in America. We must stand up to China’s blackmail and reject corporate America’s manipulation of our politicians. The U.S. Treasury’s designation of China as a currency manipulator will force China to the negotiating table and open the door to a fair – and far better – trading relationship.”.

April 20, 2016 update

Some comments on the release of the Panama Papers, which are millions of files (names, dates, amounts, etc) connected to offshore transactions which were routed through a single Panama-based law firm. There can be unwanted exchange rate effects from offshore activities, in those cases when money that should enter a country does not enter (e.g., diverted by illegal payoffs to officials) and remains “stashed” offshore; or when illegal money leaves a country and is invested in an offshore account (converted into, say, US dollars), in both cases putting downward pressure on the currency. Offshore investment and bank accounts are legitimate, even when they are located in countries with low tax rates, or whose details are less accessible to legal and tax authorities than they would be if they were located in the home country of the account holder. Because the amounts involved are often large, investors in offshore accounts can demand very high standards of performance and fund management, along with political stability and laws which are clear. So it is no coincidence that, given the status of London as the world’s financial centre, many offshore investors find the right mix of performance and stability in British overseas territories (such as Bermuda, Cayman Islands and the British Virgin Islands) and British Crown dependencies (such as the Isle of Man, Jersey, Guernsey), which also have their own legal systems separate from the United Kingdom. There is a long list of sources of offshore funds. The high end includes expatriates, investors and companies which operate in multiple countries and currencies, and people worried about political and legal conditions in their home countries. The low end includes, as mentioned above, money related to illegal activities, such as theft, drug trafficking, payoffs to corrupt officials and tax evasion. In the middle are arrangements which individuals and companies make to reduce their taxes, and it is these activities which are currently receiving the greatest amount of attention. In particular, the United States government is inceasingly less tolerant of offshore transactions, such as recently disallowing a merger among drug companies, which would have placed the profits of the merged in a lower tax jurisdiction. There has also been more commentary on provision of United States corporate tax laws which do not tax US corporate profits earned abroad until they are brought home (repatriated).

In the news has been the theft from the Bangladesh central bank of around US$100 million, some of which has been recovered. With regard to the financial impact of the theft, Bangladesh foreign exchange reserves have been climbing steadily, and are in the US$28 billion range. As an importer of oil and some agricultural commodities (particularly wheat), Bangladesh is one of the countries whose currency has been supported by lower commodity prices. Remittances from workers abroad have also been strong. The Bangladesh taka is around 78.4/US$, gently but steadily increasing over the last five years.

The Monetary Authority of Singapore (MAS) has moved the target for the “Singapore dollar nominal effective exchange rate” (S$NEER). Formerly, the target was slight appreciation; effective April 14, 2016, it is no appreciation. In its last move in October 2015, MAS kept the Singapore dollar S$NEER policy band on a modest and gradual appreciation path, but reduced its rate of appreciation slightly. Singapore is unique in that it one of the few countries that says that its monetary policy is explicitly targeted on exchange rates. The composition of the targeted exchange rate basket is not officially published (a rough estimate can be derived, however, because the MAS publishes a chart with historical levels of the S$NEER ). The size of the trading band is also not published by the MAS.

Argentina has re-entered world capital markets, with the sale of $16.5 billion in debt, in four tranches (3, 5, 10 and 30 years) at yields to maturity ranging from 6.25 to around 8.0%.

(World Currency Observer will next be updated on May 4, 2016. Visit Search to look at past issues of World Currency Observer (brochure edition).)