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

December 1, 2022 (see December 14 and December 21 updates below). Next update: Janaury 2, 2023. Visit Search to look at past issues of World Currency Observer (brochure edition).

At the beginning of December 2022, changes in world interest rates continue to be the focus of currency movements, with the observation that the world interest rate focus is not just on policy actions by central banks (which frequently lag market movements, often a very sensible course of action), but also the recognition that interest rate movements reflect a variety of influences, including economic growth and inflation. Public statements, such as those from the United States central bank, are a reminder that all of these influences suggest that interest rates are, generally, still moving up, and the uneven pattern of these movements is an important influence on how exchange rates evolve. Currencies around the world (with a handful of exceptions, each of which are based on interesting particular circumstances), are generally below the pre-pandemic US$ values which they were at nearly three years ago, which translates into what is often termed the worldwide strength of the United States dollar. But, as is noted in the WCO monthly overview below, many currencies around the world moved up sharply in November 2022 – will this be the beginning of a trend, or will these movements be reversed in December 2022? As noted below, November 2022 was also a month in which the US$ prices of many commodities rose, after many months of decline. And, the widely-reported news on the China Covid-19-related lockdown reminds us that the impact of the pandemic continues to be felt around the world.

The Mexico peso was up by around 2.5% against the US$ in November, and is down by 2.5% from its level before the Covid 19 pandemic. The Costa Rica colón strengthened for a third month, moving up by 3.5% against the US$ in November 2022. The Haiti gourde fell by 10%. The Suriname dollar fell by nearly 7.5% against the US$ in November, and is down by 48% since this time last year. The Uruguay peso was up by more than 3% against the US$ in November (up by more than 10% since this time last year.) The Euro rose by 4.5% against the US$ in November (the Euro weakened in the first few days of the month, to US$.976 per 1 Euro on November 3, then strengthened throughout much of the rest of November, which included rising above the 1US$=1Euro value on November 8.) The Russia rouble rose by 1% against the US$ in November 2022. (Since before the invasion of Ukraine in February, the Russia rouble has shown a net strengthening of around 20% against the US$). During November, the Kyrgystan som was down by 2.5% against the US$, and the Uzbekistan som was up by 1%. After falling by more than 18% in October against the US$, the Egypt pound fell by a further 6.5% in November 2022, and is now down by more than 50% from its value in US$ terms before the pandemic. The Israel pound rose by 2.5% in value against the US$ in November (the Israel central bank interest rate was raised by 0.5% in the latter part of the month.) The South Africa rand was up by 7.5% against the US$ in November. Africa currencies which weakened, substantially, against the US$ in November 2022 were the Angola kwanza, the Zambia kwacha (down 5.5% in November, and down by more than 20% from its pre-pandemic level), the Gambia dalasi and the Ghana cedi (down by 3% against the US$ in November, and by nearly 150% from its pre-pandemic value of around 5.7 per 1US$ ). And, among the African countries with sharp increases in policy interest rates in the latter part of November were Ghana (up by 2.5%), Nigeria, South Africa and Kenya. A broad range of currencies in Asia moved up in November 2022 against the US$, but a majority of them are still well below their pre-pandemic level. Asia countries whose currencies are not far below their pre-pandemic level include Australia, China and Taiwan. It may be of interest to remark that the China yuan rose by 3% in November, despite the central bank announcements of a loosening of reserve requirements for banks in China in November, a move regarded as somewhat equivalent to a decline in interest rates, because it increases bank system liquidity, affecting prices and availability of loans. Among Asia currencies, the Malaysia ringgit and the Thailand baht rose by around 7.5% in US$ terms in November; the India rupee was up by around 1.5%. The U.S. dollar prices of most commodities around the world, in November 2022, were up against the US$, reversing some of the steady declines which we have observed since their March 2022 peaks. Exceptions to the November 2022 commodity price strengthening against the US$ included oil prices (up an average of 11%) and coffee (up 10%).

December 14, 2022 update

WCO is monitoring the impact of the bankruptcy of one of the world’s largest crypto-currency providers, FTX (on the understanding that WCO does not, and never has, considered virtual currencies to be currencies, in our sense of the word)…Another round of worldwide interest rate increases has been going ahead in the first two weeks of December 2022, including the 0.50% rise by the United States central bank (the Fed) this week, and there is some discussion on whether the expected economic slowdown from interest rate increases to date will be enough to push inflation back to national target levels (such as 2% in the United States and the Euro area) by, say, the end of 2024. WCO notes the shape of the United States government bond yield curve, which peaks at one year maturity (end of 2023), and then shows a definite drop by the end of 2024 and beyond (reflecting, among other factors, market views of future inflation).

Exchange rate quotations by private financial institutions and by governments (including, but not limited to, central banks) have dimensions which extend beyond the cash sale and purchase of foreign currency for domestic currency. Exchange rate quotations are embedded in bills of exchange (such as sight bills, part of the settlement of export and import transactions), telegraphic transfers of cash (such as remittances), and the more simple bank account to bank account transfers implemented through the nostro/vostro accounts which are part of correspondent relationships. For transactions which are not the simple cash exchange of one currency for another, the underlying cash-for-cash foreign exchange rate quotations are modified by service charges for the movement of funds (such as for verification of the conditions for funds to be released), and these charges are generally stable within institutions, partly due to competition among participants in the financial sector. Because of the importance of these groups of transactions, the cash parallel exchange rates (black market is not really an accurate description), which (quite properly) receive a great deal of attentions, often apply to a fringe of currency movements – of course, this varies substantially among countries. Among the issues involved in the dimensions of exchange rate quotations are those related to customs valuation of foreign-currency-priced goods and services imports, which must be converted into domestic currency for the calculation of duties and tariffs which are payable in domestic currency (and this is further complicated in those countries where duties are assessed on exports). Yet another dimension is the enforcement of the requirements, which exist in many countries, for the conversion by exporters of their foreign currency receipts into domestic currency – one feature of the world which helps in this is the convention of world prices being quoted in one currency, which, of course, happens at this point in history to be the United States dollar (and who, really, wants to make it all more complicated, by internationalization of other currencies, no matter how large the size of the underlying economy).

December 21, 2022 update

The adoption of the Euro by Croatia (Republika Hrvatska, with a population of around four million) as its national currency on January 1, 2023, after years in the Eurozone “waiting room” (at an ERM II peg of 7.5345 Croatia kune/1Euro), is currently on a quick timetable, after the final official regulations for conversion were passed and announced on July 12, 2022. Since September 5, 2022, all prices, where possible, are required to be quoted jointly in both the kuna and the Euro. For the first two weeks of January 2023, Croatia will have dual currencies, and after that the Euro will be the only Croatia currency. Kune can be converted to Euros at the ERM II rate of 7.5345 Croatia kune/1Euro, which includes prices and bank accounts (among the many details are rules to cover bank account conversion for depositors with both kuna-denominated and Euro bank accounts.)

 Croatia kuna July 2013 to Dec 2022.png

Prior to January 1, 2023, almost all of Croatia’s reserves (around 80%) have been Euros, available to manage the kuna/Euro rate peg – remaining reserves were mostly in US$, with some held in IMF SDRs. With the elimination of the kuna in 2023, the Euro reserves are no longer required for a kuna/Euro peg, and the Euro portion of Croatia reserves are no longer foreign exchange reserves. Also, as a member of the Euro system, Croatia is part of an entity which does not “manage” the external value of the Euro (against, for example, the United States dollar, the Japan yen or the China renminbi yuan). While the EC still has foreign exchange reserves, they are less than would be needed if the EU (the European Central Bank in this case) managed the value of the Euro. WCO has also seen commentary suggesting that, as an entity with a large economy and population, the Euro currency zone is much like a closed economy (in this respect, similar to the United States), which is another reason for less need for reserves which might otherwise be needed to target or stabilize the Euro. Croatia is obliged to transfer some of its non-Euro reserves into the ECB “pot” (in accordance with the “capital key” proportion, based on Croatia population and size of economy), but this is a proportion of Croatia’s non-Euro foreign exchange reserves. (National central banks that are part of the Euro area still hold and manage their own foreign exchange reserves, which are managed in accordance with the overall objectives of the Euro area.)

(World Currency Observer will next be updated on January 2, 2023. 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.)