World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

October 1, 2015 (see October 14 update below). Next update: November 4, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Japan yen and the Euro were a little stronger against the US$ in September than a month ago. The Japan yen is down around 10% since a year ago (Japan has slipped back into deflation), and the Euro is down nearly 13% over the last year against the US$. The Iceland krona was up nearly 2% against the US$ in September. The Brazil real is down nearly 10% on the month, and has fallen more than 60% since a year ago; Brazil is currently in an economic recession. The Kazakhstan tenge fell against the US$ by 13% in September; when added to the drop in August 2015, the tenge is down nearly 50% against the US$ over the last year. The Ukraine hryvnia is up nearly 5% on the month against the US$. The Zambia kwacha fell over 40% on the month, with the fall generally attributed to downward movement in copper prices, Zambia’s key export (world copper prices rose a little in September, but are down 25% on a year ago). The South Africa rand was down 4% on the month, and down over 23% since a year ago. The Indonesia rupiah was down 5% in September and 20% over a year ago – there has been some talk that the rupiah has fallen by more than is warranted by its economic fundamentals. The Sri Lanka rupee fell 5% on the month; the Sri Lankan government made some moves to liberalise movement of the rupee early in September, with the timing of the move influenced by the China yuan devaluation which took place in August. The new Sri Lanka government had, however, previously indicated that it wants to make major moves to liberalise the financial sector.

The devaluation of the China yuan (renminbi), after being pretty much fixed for the last couple of years against the US$ while the Euro and the Japan yen had major downward movements, has caused the fixed U$ exchange rate regime countries of the world to, at least, re-assess the benefits and costs of their current fixes against the US$ (i.e., should they be moved to a different value against the US$). Among those which have been making these internal reassessments are Caribbean countries (such as Costa Rica) and Middle East countries (such as Saudi Arabia). The ultimate decisions will depend on the economic and financial structures of the countries involved, some of which are in special situations (eg, Cuba). These reassessments had started earlier in the Middle East because of the decline in oil prices. The news in September that the United States will not raise interest rates has also removed some of the urgency to making any moves. A currency with an interesting position on the general issue of the appropriate value of its currency against the US$ is Hong Kong, which has, of course, the strongest links to China of any part of the world, but also has massive US$ reserves in support of its currency board, which keeps the Hong Kong dollar fixed against the US$ in the 7.75-7.85 range.

October 14, 2015 update

On the eve of the annual meeting of the International Monetary Fund (IMF) and World Bank annual meetings, held last week in Peru, IMF staff released a major analysis (one chapter of the IMF World Economic Outlook) of how much impact exchange rate changes have had in recent years on 60 countries. The IMF positioning of the paper is to note that the results suggest that exchange rate depreciations continue to have a significant impact on exports and imports, despite recent attention paid to international supply chains, e.g., the recognition that exports of one country may include a significant component of imported goods and services, suggesting that the proper focus is on the response of the value added in a country to a change in the exchange rate, not just on the total value of exports. Some commentators have suggested that the IMF results appear to contrast with a World Bank analysis, released in August, which emphasized how international supply chains (in the sense of a growing import component of many exports) have modified the impact of exchange rate changes. WCO would add that assessment of the impact of devaluation for any particular country at any point in time has to start with a focus on the economic and financial structure of the country at that particular point in time. For example, consider how the different structures of countries, such as Canada versus Brazil versus Nigeria versus Singapore versus Japan, have affected the response of each to the recent worldwide strength of the US$ (in the case of Japan, for example: a population which has been steadily shrinking for the past 30 years).

(World Currency Observer will next be updated on November 4, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)