World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

November 4, 2015 (see November 18 update below). Next update: December 2, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro weakened slightly on the month against the US$, and is 13.5% lower than a year ago. The Japan yen was unchanged on the month, and is down nearly 8% over the last year against the US$. The Brazil real was up nearly 3% against the US$ in October, reversing a little of the downward trend which has seen the real down more than 55% since this time last year (there have been reports that Brazilian authorities, including the central bank, have been taking action to support the real.) The Colombia peso was up more than 6% on the month against the US dollar. The Russia rouble, Belarus rouble and Armenia dram showed some strength on the month against the US$, and were up by more against the Euro. The Kazakhstan tenge was down 2.5% on the month against the US$. The governor of Kazakhstan’s central bank was dismissed in October – the tenge is down nearly55% against the US$ since this time last year, more or less in line with movements in currencies of former USSR countries. The Indonesia rupiah and New Zealand dollar were up strongly on the month against the US$. Looking at currency movements around the world, what is most striking is that there was upward movement against the US$ in October, in the 1% range, by a broad number of currencies, particularly in Asia and Africa, in all cases representing a small reversal of the strong downward movement against the US$ since this time last year.

The 13th annual issue of the Doing Business Around The World survey was released in October by the World Bank, covering 189 countries, with its focus on assessing the time it takes to start a business in each of these countries. All countries are ranked against each other, using well-documented procedures and criteria, and the survey has emerged as an international benchmark. Among its many other observations, it notes that the world’s top 10 improvers, i.e. economies that implemented at least three reforms during the past year and moved up the rankings scale, are Costa Rica, Uganda, Kenya, Cyprus, Mauritania, Uzbekistan, Kazakhstan, Jamaica, Senegal, and Benin.

There was increased focus in October on issues related to international comparisons of tax rules and tax avoidance. A book released in October which was widely reviewed in the popular press is The Hidden Wealth of Nations, which contains estimates, by the author, of funds and financial assets which are hidden from national jurisdictions in offshore locations. On the track of multilateral movement on these issues by governments, there was the release in early October of a long list of proposed actions for G20 nations, in the Base Erosion Profit Shifting package of proposed reforms of the international tax system to tackle tax avoidance. At a working meeting in Lima (Peru) of G20 finance ministers and central bank governors, it was indicated that the proposed measures will be forwarded for action by G20 heads of state at their forthcoming meetings in Antalya (Turkey) on November 15 and 16. (Also discussed at Lima was Russia blocking the implementation of an IMF rescue package for Ukraine, with the holdup being the issue of Russian holdings of US$3 billion in Ukraine bonds.)

China is beginning a process which is expected to lead to relaxation of its national one child policy, which was implemented in 1979 - there are a number of exceptions to the policy in China, with two children being permitted, but enforcement of the overall policy has been very strict. The one-child policy has played a key role in Chinese economic and social development for more than thirty years, and has, with their memories of massive famines and political upheaval, been accepted as a necessity by the people of China. Modification of the one child policy, with its projected expansion of the number of young consumers, may mark a fundamentally different path for the Chinese economy in the next twenty years, with less importance for export markets, and more on demand for Chinese goods and services from within China. Following through on this idea, this would suggest that the strongest external links by China to foreign countries will not be to those with affluent markets (the United States, Japan, etc), but to those who can supply China with raw materials (Africa for sure, but also countries such as Australia and Canada), and to those which fit into China supply chains (such as the two Koreas and Taiwan).

November 18, 2015 update

There has been renewed weakness against the US dollar in the last two weeks by a broad range of currencies around the world, and also a very sharp decline (greater than 10%) in oil prices over the last two weeks….The attacks in Paris are causing reflection on one of the more fundamental issues of trade relations, and on one of most important achievements of the European Union, which is the extent to which people can freely cross national borders…. El Nino, the weather phenomenon which occurs every 2-3 years and which has a strong impact on tropical countries on the Pacific Ocean side of the world, is expected to be unusually strong this year (World Meteorological Organisation).

Along with many others, WCO is digesting the 6000-page-plus text of the Trans-Pacific Trade Agreement, particularly with regard to how it deals with the issue of exchange rate manipulation, a key consideration for legislative (Congressional) acceptance by the United States. (An English text of the 12 country agreement was released on November 5, and it is still to be drafted in Spanish for Latin American countries, and into French for Canada and other countries.) Exchange rate manipulation is handled outside the text of the agreement, as part of a Joint Declaration of the Macroeconomic Policy Authorities of Trans-Pacific Partnership Countries. In this Declaration, the key commitment is as follows: “Each Authority confirms that its country is bound under the Articles of Agreement of the International Monetary Fund (IMF) to avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage. Each Authority is to take policy actions to foster an exchange rate system that reflects underlying economic fundamentals, and avoid persistent exchange rate misalignments. Each Authority will refrain from competitive devaluation and will not target its country’s exchange rate for competitive purposes.” These issues will be dealt with by a Group of TPP Macroeconomic Officials, who will meet annually.

The G-20 Leaders’ Communique (November 16-17, issued in Antalya, Turkey), notes the following: “To reach a globally fair and modern international tax system, we endorse the package of measures developed under the ambitious G20/OECD Base Erosion and Profit Shifting (BEPS) project.” The BEPS agenda for corporate income tax mentions international cooperation to prevent instances of double taxation of corporations (there are hundreds of bilateral treaties on this issue), but the real focus of BEPS is widely thought to be the many issues involved in tax avoidance by corporations (e.g, the misuse of transfer pricing rules). As implied by the title “BEPS”, these are primarily instances of: the erosion of the tax base (countries with no or with unduly low taxes on corporate profits, sometime due to treatment of deductions); and the shifting of profits to lower tax jurisdictions. Among the many issues, the communique leaves the impression that the near term emphasis will be on the increased sharing of tax information among countries, and on closing gaps by involving non-G20 developing countries (there are more than one hundred) in measures against international tax avoidance.

(World Currency Observer will next be updated on December 2, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)