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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

May 3, 2017 (see May 17 and May 31 updates below). Next update: June 6, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro was up nearly 2% on the month against the US$. All East European currencies strengthened a little against the US$ in April. (The Czech Republic koruna remains at above 27/1Euro.) The Russia rouble fell by just over 1.5% in April, but is up by 12% against the US$ since this time last year. The Tajikistan somoni and Uzbekistan som fell by more than 3%, with the Uzbekistan som down 28% since this time last year against the US$. The Egypt pound moved up by nearly 15% against the US$ in April. The Iran rial rose in April by a little against the US$, while the Libya dinar fell by 1%. The South Africa rand went up by a little against the US$ in April. The two (Euro-linked) CFA francs rose by around 2% against the US$ (exactly the same % movement as the Euro). The Tunisia dinar fell by almost 8% against the US$ in April; the Ghana cedi moved up by nearly 4%. The Nigeria naira was down by 2.3% on the month against the US$. The Australia dollar fell by 2% on the month against the US$, roughly the same movement as the New Zealand dollar. The Japan yen and the China yuan were steady on the month, with both currencies weaker than a year ago against the US$. The India rupee was up by nearly 1% against the US$ in April, and is up by more than 3% since this time last year. The Bangladesh taka fell by 1.8% in April. In South America, the Colombia peso was down by 2.6% on the month, and the Uruguay peso rose by more than 2% on the month against the US$, and is up by 12% on a year ago. The Brazil peso is up by nearly 8% against the US$ since this time last year. North American softwood lumber prices are nearly 40% higher than they were a year ago, rising around 12% in April. Oil prices fell in April, but are nearly 10% higher than a year ago. The overall year-over-year commodity price trend has been a general decline in agricultural product prices (with very big falls in world grain prices), and strengthening in metals prices.

The Canada dollar was down 2.5% against the US$ in April, adding up to a 9% fall since this time last year. The Mexico peso was down a little, and the Iceland króna was up 5% on the month, and up by more than 13% on the US dollar since this time last year. Canada has emerged as the principal target of the evolving American trade offensive, with tariffs recently imposed on timber exports from Canada to the United States, and strong criticism of the impact of Canada dairy policies on US agriculture. (Canada has long had a completely flexible exchange rate against the US dollar, with zero official intervention). There was also a threat by the USA to tear up the 25 year-old North America Free Trade Agreement with Canada and Mexico – both Canada and Mexico have indicated openness to the renegotiation of some of the terms of NAFTA. (The US has also suggested that its free trade agreement with South Korea should be renegotiated). In the last three months, other trade-related measures undertaken by the US include: initiating assessment of the impact on US producers of steel and aluminum imports, and abandonment of US participation in the recently-negotiated Trans-Pacific Partnership trade agreement.

Correspondent banking relationships between banks are arrangements where one bank in one part of the world acts on behalf of, or in partnership with, another bank in another part of the world, in executing transactions. An important group of such transactions are cross-border money transfers, such as remittances from workers abroad to their home country, and also tourism-based or expatriate-based transactions. These cross-country relationships are anchored by bank accounts which each bank holds with the other bank. Over the last two years, a number of the global "big" banks have severed the correspondent relationships held with them by a large number of smaller banks throughout the world, citing risks to the global banks arising from these relationships ("de-risking"). International Monetary Fund staff have just issued an analysis (April 2017) which summarises and assesses the country-by-country impact of the terminations. While the general trend of de-risking affects banks world-wide, the countries where the impact is characterised by the IMF paper as most severe are: Belize, Iran, Liberia, and Sudan. While the types of risk to the global banks is quite different among these countries, it is likely that, among these, Belize and other countries in Central America and the Caribbean have felt the most impact (affecting their US-based tourism business, and trade in general), and Belize has been lobbying US authorities (including, at one point, President Obama) over the last two years to request that US global banks reconsider these severances. Participants in lobbying efforts include Caribbean-wide organisations, such as CARICOM and the Caribbean Development Bank (both of which include Belize).

The United Kingdom pound was up nearly 1.5% against the Euro in April, as the UK heads into the June 8 election, which the government hopes will dwell on a mandate for forthcoming negotiations on withdrawal from the European Union. There are suggestions from EU officials that the UK will not be permitted to negotiate the future EU-UK economic relationship before the terms of withdrawal (such as a cash settlement) have been finalised.

May 17, 2017 update

WCO notes that Barbados, one of many fixed exchange rate countries in the Caribbean (the Barbados dollar has been at 2/1US$ since 1966) has increased, to 15% from 10%, the percentage of the value of deposits that commercial banks must hold in government securities. While Barbados is expected shortly to be turning to the IMF for assistance in handling its external debt, the move on reserves is viewed more as a measure to increase very short-term interest rates, which will help maintain the US$ peg, particularly as cash reserve requirements against deposits remained unchanged. With regard to external debt problems in many Caribbean countries (these debts are mathematically equal to accumulated current account deficits, plus some residual), there is no necessary link to whether the exchange rate regime is fixed or flexible – Jamaica is a flexible exchange rate country with a debt problem, on which it is working with IMF assistance. The most populous country in the Caribbean with a fixed exchange rate is Cuba, which has been at 1 convertible (CUC) peso=1US$ for most years since 1994 (which currently implies 25 non-convertible (National) pesos=1US$). Other Caribbean countries with fixed rate regimes are set at levels such as 1/US$, 1.5/US$, 2/US$ and 2.7/US$, in most cases reflecting the United Kingdom pound to US$ exchange rate on the particular day in the 1960s and 1970s on which the previous currency link was switched from the pound (or from other currencies) to the US dollar. In Central America, Belize (the former British Honduras) is US$-fixed, Panama (a former US “protectorate”) and El Salvador use the US$; while Costa Rica, Guatemala, Honduras and Nicaragua currencies are managed floats against the US$. The Caribbean countries, plus Belize, constitute one of the two most important fixed exchange rate zones in the world, the other being the European countries which are members of the Euro zone, where exchange rates have been “locked-in” since 1999. Among Euro members, mention must be made of the country which has been the most successful in managing its economy under fixed exchange rates: Germany, which thrived with the Deutsche Mark in the post-World War II fixed exchange rate environment, and has (arguably) had even more success since the Deutsche Mark was permanently fixed against the French franc, Italian lire, Spanish peseta and other European currencies in 1999, when these countries adopted the Euro.

There has been increasing focus on the country-by-country implications of China’s One Belt, One Road development and investment strategy, for Europe, Asia and Africa, which was first announced in 2013. The recent release of a background document has laid out many of the considerations and directions and, among these, has raised the possibility of up to US$50 billion in direct investment in Pakistan. More on this later from WCO.

May 31, 2017 update

The report "Honest Accounts 2017: How the World Profits from Africa's Wealth", suggests that an estimated $29 billion a year (2015 figures) is being stolen from the non-Sahara desert parts of Africa (includes South Africa, excludes Egypt and other North Africa countries) in illegal logging, fishing and the trade in wildlife/plants, an admittedly hard figures to estimate. So it is perhaps more interesting to focus on the suggestion that the estimated $19 billion in aid grants received by African countries is much more than offset by $68 billion taken out by capital flight, mainly comprised of, the report says, $48.2 billion by multinational companies deliberately misreporting (mis-invoicing) the value of their imports or exports, to reduce taxes and tariffs. The concept of mis-invoicing was previously applied by, among others, the UN Economic Commission for Africa, for the years 2000-2010. The source of the $48.2 billion figure is Global Financial Integrity (GFI), which measures trade mis-invoicing, of the type quoted for the Honest Accounts report by, essentially, measuring mismatches between locally compiled trade figures for particular countries, and rest-of-world exports and imports for those countries. (GFI experience with related topics includes the development of a proprietary package, GF Trade, which allows customs officials to make on-the-spot comparisons of specific invoiced export and import values with those drawn from larger data bases.) One goal of these reports is to challenge the common view on the meaning of capital flight in Africa, moving away from the idea that it mainly comprises "nervous money" fleeing in-country-created financial insecurity (such as volatility in exchange rates and interest rates, fear of confiscation, etc.), and towards the idea it is predominantly money which is the proceeds of illegal activities, or money which is to be used for illegal activities outside the country. Among figures of interest in the Honest Accounts report are comparisons of the 2015 grand totals (outflows from sub-Sahara Africa of $202.9 billion, inflows of $161.6 billion, net outflow of $41.3 billion) with previous figures for 2012. The 2015 net outflow estimate of $41.2 billion represents a decline since the 2012 estimate of $58 billion - due, says the report, to falls in international prices of resources.

(World Currency Observer will next be updated on June 6, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).)