Headline for .     Since the beginning of 2018, despite the Covid-19 pandemic, currencies around the world are generally down against the United States dollar.     
World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

August 3, 2021 (see August 18 update below). Next update: September 1, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

The US dollar generally strengthened against currencies of the world in the first half of July 2021, until the week of July 19, and then gave back most of these gains. The result was that, for a long list of world currencies, there was a small net change in July against the US$ (up, down or level). The Jamaica dollar fell by 3% against the US$ in July, and is now down by more than 16% since before the pandemic (the largest currency movement by any currency in the Caribbean and Central America regions). The Haiti gourde was down by nearly 3% in July against the US$. The Brazil peso rose by nearly 7.5% against the US$ in July, and is now down by 28% from its value before the pandemic. The Chile peso and the Colombia peso both fell by a little more than 3% in July 2021 against the US$. The Euro fell until the week of July 19 against the US$, and then rose, ending July with little net change against the US$. The Norway krone was down by 2.5% against the US$ in July 2021, and has shown a slight net downward movement from its value before the pandemic. The Swiss franc was up by 2% in July, and is now up nearly 6.5% from its value before the pandemic. The South Sudan pound was up by nearly 8.5% in July. The South Africa rand fell by a little more than 2% in July against the US$. The Philippines peso was down by 3.5% in July (up slightly against the U$ from before the pandemic), and the Taiwan dollar is up by 6.5% from before the pandemic. The Pakistan rupee fell by 2.5% against the US$ in July 2021, and is down by nearly 4.5% from its value before the pandemic. The Myanmar kyat was down by 3.5% against the US$ in July (down nearly 9% from its value before the pandemic). Oil prices were flat in July, and are up by nearly 15% since before the pandemic (more on commodities below).

The Zambia kwacha rose by 15% in July 2021 against the US$ (this included a 7.5% appreciation on a single day, July 23), leaving the kwacha down by nearly 40% from its value before the pandemic. (Zambia had a debt default in November 2020, but there are suggestions that funds from an IMF extended credit facility may be coming.) Questions were raised in Zambia on whether there should have been central bank intervention to moderate the rapid rise in the kwacha, while others suggested the movement reflects improving fundamentals, including strong copper prices, which tie in with the government acquisition of the Mopani copper mines. Another factor: general elections are to take place on August 12.

It has been 8 months since Libya revalued its currency, which closed the substantial gap between the parallel rate and the official rate, by moving the official rate to 4.5 dinar/$1US from 1.4. Recent data suggests that the parallel rate is now at around 5 versus the official rate of 4.5, a gap which has proven to be stable, despite continuing conflict in Libya, including a separate government in the eastern part of the country.

There is still considerable disagreement on the future paths of worldwide Inflation rates (very important for the determination of exchange rates), in part because the baskets used to measure consumer price inflation in different countries often vary from that of the U.S, which is the benchmark currency and therefore has the benchmark inflation rate for exchange rate determination. Reasons for variations are not, however, just different included/excluded commodities and services (e.g.: durables such as real estate and cars), but also geographical variation (such as differing inflation among European Union countries), and, in some cases, multiple consumer price indices covering all regions of a single country, like in India, which quotes separate consumer price inflation rates for rural and urban workers. A sidelight on the U.S. inflation rate, which is responsible for considerable support for the view that U.S. inflation will soon fall despite the high levels of May and June, is the dramatic fall in North America softwood lumber prices (mostly used for houses), despite a continuing boom in housing prices, and forest fires on the west coasts of Canada and the US. (important regions for lumber production). Other influences are prices for world-wide traded commodities. Commodity prices generally dipped in early 2020 as the pandemic took hold, and then climbed back to their pre-pandemic level. But there were notable exceptions in world markets, such as gold and silver prices, which climbed steeply during the early parts of the pandemic (other exceptions, but with slightly different paths: copper and rice).

Commodities: one year high and low

Vietnam has been an outlier in many respects in 2020, with economic growth among the world’s highest despite the pandemic, and with a major bond rating agency citing its approval of the Vietnam approach to Covid-19. Also, a free trade agreement between the United Kingdom and Vietnam went into effect on May 1. In addition, the U.S. designation of Vietnam as a manipulator of the dong vis-à-vis the U.S. dollar (in order, in the view of the U.S., to gain a competitive advantage in trade with the U.S.), has been further softened. The former U.S administration (Trump) had designated Vietnam a currency manipulator in December 2020, largely on the basis of its current account surplus with the United States, despite the fact that the upward movement of the dong against the US$ in 2020 was not out-of-line with upward movements of other currencies. The new administration (Biden) removed the currency manipulator designation, but still said the current account surplus was of concern, and that further talks were required. The talks have been concluded, and the U.S. has indicated satisfaction with Vietnam attention to U.S. concerns. Vietnam has been arguing that the growth of its surplus is a consequence of the U.S. trade war with China, which has seen supply chains shift to Vietnam.

Because of the hyperinflation in Venezuela, there has been an accelerating depreciation of the Venezuela bolivar, with the “official value” now at around 4 million per 1$US (it was 1 million/1$US at the start of 2021). There is a common perception that hyperinflations are solely driven by series of government deficits (“most hyperinflations stem from the government’s need for seignorage revenue”), but this is too simple, partly because virtually all government deficits do not lead to hyperinflation (for example, look at what is, or, rather, what is not happening now during the Covid-19 pandemic). An important part of the hyperinflation process is that people and businesses borrow more and more, as they know the hyperinflation will dramatically reduce their inflation-adjusted debt – for the same reason, they spend it right away, so economic activity based on hyperinflation sources of finance goes up, not down. (At the same time, financial institutions must be willing to expand their lending during the hyperinflation.) There is also a diversion of domestic production towards exports, because of the preference for hard currencies during a time of dramatic and unpredictable declines in the domestic currencies. What really hurts in hyperinflations are the price distortions, because every price and wage cannot possibly keep up with the accelerating inflation, and efforts to meet needs at such times are an important reason why governments deficits increase (in modern times certainly, but not as much as in the hyperinflations of the 1920s). Another wide group of losers during hyperinflations are those individuals who do not have access to bank loans – those with unlimited access to bank loans can be big winners, which can sometimes be related to corrupt practices in the financial system.

August 18, 2021 update

The track of the Sri Lanka rupee has been the same as many other currencies around the world, including momentary weakness in the early (April 2020) days of the pandemic from which it recovered quickly, then gradual weakness at the end of 2020. One feature unique to Sri Lanka (population 22 million and inflation at just under 6%), however, was a sharp upward movement in the rupee at the end of April 2021 (connected with the announcement of a loan from China), a gain which was erased in early May. The Sri Lanka rupee has been at around 200/1$US for the last few months. Sri Lanka has lacked tourism because of the pandemic, but is also under some additional external pressures on foreign exchange availability (measures introduced recently on this front include accelerated conversion of export earnings into rupees) due to its moves to shift away from the IMF as its principal external debtor, towards China. Sri Lanka has a trade and exchange rate structure typical of many similar sized countries in Africa and Asia, but one of its unique characteristics is its proximity to India, which is, at its closest point, around 50 km away (the Palk Strait), and with whom it has had a free trade agreement since 1988. Despite this, the main country to which Sri Lanka exports is the United States (25% of export value), and the EU+UK – exports to India are much less. The most important source of imports is India (21%), but China is close behind. The top Sri Lanka exports are its traditional Ceylon tea, with manufactured products close behind, and the top imports are petroleum products (Sri Lanka has no oil and gas production). Despite its proximity to India, Sri Lanka has been separate from India since its days as the British colony of Ceylon (it became Sri Lanka in 1972, when it left the British Commonwealth of former empire nations), and became independent at around the same time as India (1948). Another situation unique to Sri Lanka: a long civil war with the Tamils, which lasted from 1983 to 2009.

 Sri Lanka rupee 2020 to August 2021.png

The Medici exhibition at the Metropolitan Museum in New York is based on 16th century Medici personalities, during the period when the Medici came back into power (in Florence/Tuscany, Italy) after having been exiled in the previous century. The Medici family personalities in the portrait exhibition include Duke Cosimo I, Pope Clement VII, and, a person who is currently attracting wide interest, Duke of Florence Allesandro (the illegitimate son of a 17 year old boy member of the Medici family and a Black slave girl-Allesandro is now widely remarked as the first Black head of a Western country). The World Currency Observer staff, continuing their research on the Medici, focus on the merchant banking and exchange rate operations of the Medici Bank, which operated in the 15th century, a period which also had its own personalities. For example, the Medici family in the 15th century also had an illegitimate child by a white slave girl (from a region that is now part of Russia). As was the case with Allesandro, the boy was taken into the Medici family of the 15th century, and treated exactly the same as the other Medici children, to such an extent that he also became a prominent figure in the Florence society of that era.

(World Currency Observer will next be updated on September 1, 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.)