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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

June 3, 2020 (see June 17 update below). Next update: July 1, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition).

WCO is awaiting the release, in the next few days, of international trade figures for April 2020, the month when international coronavirus (Covid-19) shutdowns were at their peak. Exchange rates around the world were generally stronger against the US$ in May. Currencies have, generally, continued to strengthen against the US$ since the low reached in the middle of March, but have not yet reached the level they were in January 2020, before news of the pandemic took hold. The Mexico peso was up by 10.5% in May against the US$, and the Iceland króna was up by 7%. The Canada dollar rose by just over 2% against the US$ in May. The Dominican Republic peso fell by 5% against the US$ in May, and is down 10.2% since this time last year (a floating exchange rate in the Caribbean vulnerable to a coronavirus-related drop in international tourism). The Haiti gourde fell by 6.5%, and the Nicaragua córdoba oro rose by 1% in May against the US$, leaving it down by 1.5% since this time last year. The Peru sol fell by 2.5% against the US$ in May, and the Paraguay guaraní fell by 2%. The Colombia peso rose by 6.5% against the US$ in May (down 11.5% since this time last year), and the Brazil real rose by 1% in May (down 38% against the US$ since this time last year). The Euro was up by 1%, and the Norway krona up by nearly% in May against the US$. The United Kingdom pound was down by 1.5% in May against the US$, and, as widely remarked, the pound was down by 2.5% against the Euro. All Eastern Europe currencies rose against the US$ (such as the Hungary forint, up 3.5%), and their rise was higher than the 1% rise of the Euro in May against the US$. The Kyrgyzstan som rose 6% against the UD$ in May (down 7.7% since this time last year), and the Russia rouble was up 3.5%, following its large increase against the US$ in April. The Ukraine hryvnia is up more than 3% against the US$ since this time last year, and rose by 1% in May. The Iran riyal fell by nearly 7% in May against the US$. Since this time last year, the Egypt pound is up by 5.5% against the US$, and the Israel shekel is up by 3.5%. The South Africa rand was up by nearly 7% in May against the US. The Democratic Republic of the Congo franc, a petro-currency, fell by 7% in May. The Ghana cedi and the Cabo Verde escudo were both up by nearly 2% against the US$ in May. The Australia dollar was up by nearly 3.5% in May against the US$, and the New Zealand dollar was up by just over 2%. The China yuan was down by 1%, and the South Korea won was down by 1% against the US$. The Thailand baht rose by 2% against the US$ in May, and the Myanmar kyat was up by 1.5% (and up by 8.5% since this time last year.) After several ups-and-downs, the India rupee finished May slightly stronger than it was at the beginning of the month. Oil prices have moved up sharply in May; also up were metals prices. Rubber prices are down nearly 30% since this time last year, after a 3% rise in May.

Saudi Arabia riyal June 2020

All governments around the world have increased debt-financed support for persons and businesses to help them cope with the coronavirus shutdowns of economic activity; among these countries, the ability of poorer countries of the world to obtain additional finance during the pandemic is rooted in their ability to service their foreign currency debt. On April 15, the top finance officials of the G20 group of nations met (by computer link, chaired from Saudi Arabia) and issued a detailed coronavirus-related communique, which targeted the 76 IDA countries (i.e., the current list of countries which are eligible for zero interest rate "concessional" loans from the World Bank-IDA) and the 47 countries on the United Nations (UNCTAD) list of less developed countries (all of the 47 UNCTAD countries are on the IDA list), allowing these countries to apply for the suspension (in return for certain conditions) of their May-December 2020 interest and principal payments to official governmental lenders, until 2022, and then to be repaid over 2022-2024. The communique also says private lenders are “called upon publicly” to offer the same concessions. After that, on May 7, a letter (signed by 200 legislators and elected officials from around the world) was sent to the heads of the IMF and the World Bank which went further, suggesting that all interest and principal payments for all IDA countries be cancelled, not just suspended. The letter noted that at least 25 countries have already received IMF grants to pay for debt servicing during the pandemic. A May 27 letter from the IMF, responding to this letter, noted that neither the World Bank nor the IMF has the authority to cancel debt owed to them (the normal permitted route consists of IMF and World Bank grants or additional loans to finance these payments), and also remarked that the IDA group of countries is diverse, suggesting that not all of them will want to see general debt cancellation. The IMF noted that it expects to make emergency loans to 79 countries during the pandemic. In a separate comment that touches on the concerns raised in the May 7 letter, the World Bank noted that it is providing support of all types to 100 countries during the crisis. Looking more closely at the above IDA and UNCTAD lists, there are several breakdowns classifying the degree and character of the needs of poorer countries during the pandemic (these distinctions are, of course, also highly relevant for exchange rate analysis). Among these are: war-affected areas such as Afghanistan, Chad, Haiti, Niger, Syria and Yemen (one can also compile a separate list of economies which have not fully recovered from previous civil war-type conflicts); the very diverse group of sub-Saharan Africa countries, which comprise 39 of the 100 countries on the World Bank list, which range from resource-rich countries to a couple of narco-states; and small island economies, of which there are 15 (comprising 20% of the IDA list, and a larger part of the UNCTAD list) many of which are on these lists because they are too small to have favorable access to world capital markets, and they also happen to be heavily dependent on tourism. (It should be remarked that the IDA list also includes Nigeria, with a population of 200 million). Among the 76 IDA countries, there are at least 10 which are on the list because they meet the low per capita income threshold, but are well-off enough (e.g., resource-rich enough) so that it may be difficult to argue that they should have all of their debt forgiven as per the May 7 letter, but one could see them as qualifying for the G20 deferral of payments proposal. One figure of interest which seems to be widely agreed upon is US$2.5 trillion, said to be the minimum financial need of poorer countries to deal with the pandemic, a small enough amount compared to, say, United States pandemic-related expenditures, to tempt quick measures, such as the proposed debt cancellation. The G20 communique makes numerous comments on the role of the IMF, and also suggests that the IMF has a $1 trillion lending capacity, which falls short of the suggested financial requirement. An issue is whether the process of grants and lending is moving quickly enough in all countries in response to the pandemic, so that the quick-fix of, say, a unilateral debt cancellation for poorer countries, can be avoided, in favor of more targeted and conditional approaches tailored to individual countries.

There was, during May, a great deal of news connected with China, including a suggestion that the United States will, in reaction to reports that China is going to revise the fundamentals of its relationship with Hong Kong, start treating Hong Kong the same as China in its trade relationship. China announced measures to reduce imports from Australia of beef and barley in May, a month when the Australian dollar moved up - part of the reason for the strength in the Australia dollar is that Indonesia (population: 280 million) has ratified a free trade agreement with Australia, to go into effect on July 5.

June 17, 2020 update

Balance of trade figures for all countries have been published for April, which was the month of full lockdown and border closures in most countries of the world - re-opening has proceeded since then - and the patterns are rather complicated (United States BEA data include estimates of trade in services, but not all countries do this). In April, United States imports and exports fell, but the fall in exports was larger, resulting in an increase in the trade and (estimated) services deficit. Looking at selected countries around the world, imports fell in most countries, but the movement in exports was mixed, and their overall impact on exchange rates has been modified by pandemic-related reductions in tourism, and also by capital flows connected with searches for returns in a period of great uncertainty, at a time when policy interest rates have fallen to almost as low as they can go in most countries, and many stock markets have been rising in value. China imports went down in April but exports increased; the same was true for Taiwan, which attributed its performance to strong demand for medical supplies related to the pandemic and also to a pandemic-related surge in demand for electronic communications equipment, and the same is largely true of China. The United States breakdown of its increased trade deficit for April suggested a very large increase in the United States deficit with China, but also improvement in its balance of payments with many other countries, such as Japan. Japan reported a large reduction in its trade account in April, but an even larger worsening of its April capital account. Another country with increased exports over the last few months has been Brazil, while imports have plunged, thereby improving the Brazil balance of trade (Brazil has a very small time delay in the publication of its trade data, and has already published figures for the first part of June – other countries have just published April 2020 data). The European Union issued trade in goods data for April for both the Euro area and for the European Union as a whole, and, in both cases, they suggest that the decline in EU exports was greater than the fall in imports, but also that the EU continues to be in a goods surplus with the rest of the world. (And WCO remarks that we are currently reading and analysing a Foreign Affairs article by the United States Trade Representative (Lighthizer) on the thrust of U.S. foreign trade policy.)

 USA trade deficit 2019 to April 2020

There were street demonstrations in Lebanon last week to express anger and concern over a plunge in the value of the pound, which has fallen steadily since last summer, and then faster since the beginning of 2020 (when it was at 2000), but even more in recent days. Inflation in Lebanon is at around 50 per cent, Lebanon imports most of such essentials as food and energy, and the coronavirus has made things worse. The Lebanon official exchange rate (current mid-point: 1507.5 pounds/US$) is quoted by the central bank, and the market exchange rate quoted and traded by the Syndicate of Exchange Houses (in coordination with the central bank, which issues circulars on exchange rates to the Syndicate, which then publishes the exchange rate), has moved up from its end-of-January value of 2000, reaching around 2800 at the beginning of April, and then recently plunging in value to 4000 (the Syndicate rate is currently at a mid-point of 3915 pounds/US$, although there are reports that the pound has touched 6000 in some market segments.) Among recent developments in government management of the shortage of foreign currency was the lifting, in April, of a freeze on withdrawals by Lebanon citizens of their US$ deposits in Lebanon banks made prior to Oct 18/19,, but requiring that withdrawals be converted into Lebanon pounds at an exchange rate of 3000. At the beginning of May, there were arrests of some foreign exchange dealers, who were accused of not following the central bank circular of that time, which had set the market rate at 3200.

(World Currency Observer will next be updated on July 1, 2020. 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.)