World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

May 1, 2014 (see May 6 and May 20 updates below. Visit Search to look at past issues of World Currency Observer (brochure edition).)

The euro and the yen were both up slightly on the month against the US$, a movement similar to many other currencies around the world. The Russian rouble is down 15% on a year ago, and the Ukraine hryvnia is down 40% on the year.

The Russian annexation of Crimea (population: 2 million (cor)) included the introduction by the Crimean Parliament, beginning March 17, 2014, of the Russian rouble as the 2nd official currency alongside the Ukrainian hryvnia, with the rouble to be the only official currency as of January 1, 2016. There then began the ongoing process (estimated at the time to require 2-3 months) of converting hryvnia-denominated prices, wages and payments throughout the region into roubles. The conversion rate chosen for official government payments (such as pensions) was 3.8 roubles/hryvnia, which was the estimated prevailing rate on March 16, 2014 (as of May 1, the market rate is 3.1939 roubles/hryvnia) – the target date for this part of the conversion was April 1. An ongoing part of the process is the conversion of bank deposits into roubles, which is linked to issues such as what to do about Ukrainian bank branches in the Crimea, and precisely which deposits are to be converted, and at what exchange rate (said to also be at the official 3.8, but which may be different by the time bank issues are sorted out). Indications are that Russian authorities are attempting to choose official rouble/hryvnia conversion rates that create a modest rouble windfall to Crimean holders of hryvnias.

The Parliament of the European Union approved, on April 17, measures to achieve, by the beginning of 2015, EU-wide bank regulation by the European Central Bank (ECB) for the 130+ banks operating in more than one member of the Euro-using parts of the union, and to establish EU-wide standards and requirements for deposit insurance for accounts of up to Euro 100,000 (the 1st part of the “three pillars”, the designation of the ECB as the Euro-zone bank supervisor, was accomplished in autumn 2013). WCO remarks that measures by the European Union, since around August 2012, to “complete the banking union“ in the EU, are not driven primarily by ongoing worldwide initiatives (spearheaded by the Bank for International Settlements) to strengthen bank balance sheets (more capital, higher standards for loan quality), but, rather, to strengthen the Euro currency (avoiding possible bank runs in the Euro-using zone, and avoiding capital flight from the Euro), fears which arose two years ago when there was concern about the possible impact on the Euro of the potential exit of then economically-weaker counties from the Euro (such as Greece or Portugal).

The Zambian kwacha, the currency which is considered to be the world’s mostly strongly linked to the price of copper, has fallen around 15% since the start of 2014 (down 6% through all of 2013). But, more significantly, a sharp decline in the kwacha in late March, to as low as 6.327/US$, was sharply reversed over several days, although this reverse may turn out to have been temporary – the kwacha is now at 6.3391. The continuing 2-month-old episode has been marked by firm intervention by the Bank of Zambia, in line with a statement on March 6 by the Bank of Zambia governor, which said that, aside from the fundamental downward pressure on the kwacha (because of a reduction in the price of copper), that a state of panic had gripped market participants, and that counteracting this was the goal of intervention by open-market operations (and by raising interest rates). The overall thrust: to keep Zambian inflation, 7.7 % in March 2014, on target for the goal of 6.5%.

Zambia kwacha May 1 2014

May 6, 2014 update

The United States Federal Reserve is reducing (“tapering”) its monthly bond purchases by a further $10 billion per month, based on its assessment of improving US labor market conditions, and further such reductions are likely to come, from time to time, over the rest of 2014. There was, in the first few days after the April 30 announcement, little noticeable impact on world currency markets of this particular tapering announcement than of previous such announcements.

May 20, 2014 update

A gradual convergence has been occurring over the last year of Thailand and Vietnam rice prices, with the winding up of the Thai government’s generous 3-year-old subsidy program for rice farmers and the sale of the resulting Thai rice stocks (which had to begin at some point because of the risks of spoilage of rice when it is stored in large quantities). WCO remarks that the Thai rice subsidy program mimics historical government fiscal stabilization policies, which were not based on surplus/deficit financing over business cycles, but rather on the purchase/sale of grain over year-to-year harvest cycles. These are well understood in Asian economies, and perhaps less well understood (or, more correctly, forgotten) in Europe and America. Agricultural policies, particularly for rice, remain a central concern in international trade negotiations for tropical and sub-tropical economies. And, of course, rice is a key source of calories for much of the world’s population, and is thus a major component of inflation rates in those economies.

WCO thinks that this week’s Europe-wide elections to the European Parliament (May 22-25, 2014) will start the ball rolling for a shift in views about the appropriate euro/US$ and euro/yen exchange rates.

(Next update: June 2, 2014. Visit Search to look at past issues of World Currency Observer (brochure edition).)