July 3, 2019 (see July 17 update below.) Next update: August 1, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro, over the entire month of June, registered a net rise of nearly 2% against the US$. While much of the upward movement occurred in the period after President Trump made a twitter statement (June 18) blaming the European Central Bank President (Draghi) for a fall in the value of the Euro in US dollars (a fall which had been happening in the previous two weeks), many other currencies around the world also strengthened against the US$ after June 18 (see below). The Canada dollar moved up by just over 3% in June against the US$, leaving it above the level it was at this time last year. The Mexico peso moved up by just under 2.5%. In the Caribbean area, the Haiti gourde continued its fall in June against the US$, and is now down by 40% since this time last year. The Jamaica dollar was up by 4% in June against the US$, the Trinidad and Tobago dollar was up by 2%, and the Costa Rica colón was up by 1% against the US$. The Nicaragua córdoba oro was up a little in June, leaving it down by 5% against the US$ since this time last year. South America currencies were generally up (one had essentially no net movement: the Uruguay peso) against the US$ in June, with a 5% rise in the Colombia peso, and a 2.3% rise in the Brazil real. The hyper-inflating Venezuela bolivar fuerte continues to fall. Besides the movement in the Euro mentioned above, other Western European currencies also moved up against the US$ in June. Eastern European currencies strengthened against the US$ in June, with the Turkey lira up by 2.6% on the month. The Ukraine hryvnia is now up more than 1% against the US$ since this time last year, after registering a strong rise of 10% in June. The Ukraine hryvnia is now up more than 1% against the US$ since this time last year, after registering a strong rise of nearly 7% in June. The Russia rouble rose by over 3% in June against the US$. The Georgia lari has fallen by 14% since this time last year against the US$. The Israel shekel was up by 1.5% in June against the US$. A rise of over 3% by the South Africa rand in June against the US$ more than reversed the 2% May decline - the rand is now down 3% against the US$ since this time last year. The Angola kwanza fell by 3.5% against the US$ in June, and is down 38% against the US$ since this time last year (most other Africa currencies have been more level than this over the last year). The Liberia dollar fell by nearly 16% in June. The Tunisia dinar was up by 4.5% against the US$ in June, and is now down by 9.5% since this time last year. Many currencies in the Pacific Rim moved up against the US$ after June 18, such as a 1% rise in the Japan yen, and there was upward pressure on the Hongkong dollar (even though its 7.8/1$US value is anchored by the Hongkong Monetary Authority currency board). The New Zealand dollar rose by nearly 3% against the US$ over the month of June, and the China yuan rose by just under 1% over the month. The Pakistan rupee fell by 8% against the US$ in June, following its May decline, and is 34% weaker against the US$ than this time last year. The India rupee moved up against the US$ in June (1%), as did the Thailand baht (up nearly 3%) and the Singapore dollar (up by 1.5%). There was almost no net change against the US$ in June by the Vietnam dong and the Sri Lanka rupee. Upward movement by commodity prices in June against the US$ was shown by agricultural commodities affected by the China-U.S. trade war (such as soybeans), and also by gold prices (perhaps the "safe haven" effect in the face of pockets of economic weakness in some parts of the world?). Oil prices rose in June, but are still down by 20% since this time last year.

World Currency Observer does not consider cryptocurrencies to be real currencies, in the way that we define currencies, with one reason being that the major cryptocurrencies have not, as of yet, been issued by governments with sovereignty over defined territories (no matter how small the territory, nor how fragile the sovereignty). That being said, the new proposed Facebook cryptocurrency, the Facebook Libra, is well placed to become the world`s most important cryptocurrency, for a number of reasons, such as: its worldwide reach (backed by major multinational organizations), which may translate into acceptance for payment by a far wider group than is the case for any of the currently existing cryptocurrencies; because of the commitment by all of its prominent sponsors that the Libra will be backed on a 1:1 basis by hard currencies, although it is not clear to WCO if there will be a currency-board- type of commitment to convert the Libra to hard currencies on request, which would, if implemented (effectively becoming a currency board), allow the Libra to avoid the considerable fluctuations of US$ value which is characteristic of other cryptocurrencies; and, given the resources of the Facebook group, the chance that the Libra could have the “best” blockchain technology (protocols, distributed ledger, time it takes to validate a transaction, etc.). The Libra, when launched, will be useful for payments for sales and purchases, it may become useful for remittances, and one could imagine Libra-denominated international debt issues someday (this would be a major hurdle, not one that could be reached for a number of years). The Libra White Paper suggests that a benefit of the Libra will be overcoming problems people and companies have with worldwide access to the banking system, but the Libra financial structure is not that of a bank (no lending, for example). If payments received in Libra coins could then be readily convertible into hard currencies, then Libra payments they will be acceptable by many organisations which normally would accept cryptocurrencies. But even the guarantee of hard currency backing for the Libra can be fragile when compared to the currency board of a sovereign country – who will hold the hard currency, which country’s law will apply, where will the currency be held (in connection with this, there is talk that the Bank of England is considering allowing non-banks to place overnight deposits with the Bank, which could turn out be a first step on this issue, although it is almost certain that this move by the Bank is not being made with the intention of supporting cryptocurrencies). Many months of discussion and analysis lie ahead.

The government of Zimbabwe has made a major move to restore the use of its own currency, with the Minister of Finance announcing (abruptly) that the US$ and other currencies are no longer to be legal tender in Zimbabwe. Zimbabwe has recently been making some moves in the direction of the relaunch of its own currency, such as the introduction, in April, of a new currency code. The new code is ZWL, which is replacing the ZWR code, which was linked to the former Zimbabwe dollar, use of which was abandoned in 2009 due to hyperinflation. Indications of the value of the new Zimbabwe currency per 1$US have been available, since April 2019, under the name of the new ZWL currency code (equivalent to the RTGS value, which has been in place since November 2016). The value of the ZWL has fallen, from 3/1$US in April 2019, to around 6.54 (official), around 9/1$US (unofficial) and around 7.25 (interbank market in Zimbabwe) at the end of June.

The annual report recently issued by the European Central Bank on the international use of the Euro suggests the Euro has a 20% share of most multinational segments, such as holdings of international reserves and international lending, with higher shares for foreign exchange trading, and currency of payment (the share of the U.S. dollar is around 60% for reserves and lending, and somewhat less for the other categories). WCO is not a blog, but we have received an item on the Euro, which we have been given permission to share with readers, regarding Martin Feldstein, the prominent American economist who recently died (RIP). The communication remarks that it is hard to find “prominent” academic economists who now support the Euro, or who will admit to having ever supported it. The communication suggests that Mr. Feldstein was among the strongest American supporters of the Euro in the period immediately around its launch in 1999, and that some of his reasons were (and remain) very persuasive, such as, for example, that the industrialised north of Italy had (has) more in common with the industrial area of Germany that it did (does) with the south of Italy, so the replacement of the Italy lira by the Euro would actually prove to be better for the stronger parts of the Italy economy. It was suggested that WCO should carefully read a paper (NBER) of Mr. Feldstein, issued on the first anniversary of the 1999 Euro launch, which combines pessimism about the Euro with many hints of his former support. WCO will share comments received on this communication regarding Mr. Feldstein.

July 17, 2019 update

The Pakistan budget for the 2019/20 fiscal year beginning July 1, which will be complemented by an IMF aid package (US$6bn in IMF loans, and an IMF-projected “unlocking” of $38bn in funding from other sources), says that a fundamental reform will be enhanced tax collection, and there is a link between tax collection and (via the current account) the Pakistan rupee, because enhanced tax collection means that less reliance has to be placed on import customs duties (taxes on imports). The Pakistan budget talks at great length about the room for improvement in tax collection, stating, for example, that the Pakistan tax-to-GDP ratio is 12 percent, which it says is the lowest for the region, and which should rise to 20 percent. Another statistic from the government: out of a population of around 210 million, there are 2 million people who file income tax return. The budget also says that Pakistan customs tariffs and import stage income tax revenues are the highest in the region, boosting raw and intermediate good prices, which harm the price-competitiveness of Pakistan goods on world markets. So, at the same time that the government is moving to increase domestic tax revenues, the Pakistan budget says that it will reduce duties on a list of imported raw materials and intermediate goods, on the expectation that the lost revenue will made up for by increased industrial production (exports, etc.). The Pakistan budget says that further customs rationalisation is to come.

The Canada dollar has been getting stronger over the past few months against the United States dollar, along with many other currencies around the world, and WCO wants to remark on an interesting historical fact about the Canada dollar, which has to do with transitions from fixed to floating regimes, a fact which has been highlighted in a recent Bank of Canada paper (Schembri). Historically, virtually every time that any currency around the world has moved, by itself, from a fixed exchange rate to a floating rate, the underlying cause has been an unsupportable over-valuation of the currency, so that the currency has gone down against the world core currency (for the last hundred or so years, this has been the United States dollar). Canada has been an exception, in that the two times since World War II that the Canada dollar has moved from a fixed to floating rate regime (September 1950 and May 1970), the Canada dollar has not fallen, it has increased in value. The move made in 1950, when the world was on the Bretton Woods fixed exchange rate regime after World War II, was courageous, in that it was widely criticised as undermining a key component of the world financial system of that era (in fact, Canada had little choice, because the move insulated Canada from Korean War-related U.S. inflation). The 1970 move to a floating exchange rate regime was less controversial, as can be understood when it is realised that the world`s major currencies moved to floating exchange rates in September 1973, a move which was preceded (in August 1971) by the United States cancelling the fixed value of the US$ to the value of gold. One significant result of the 1950 move was that Canada became, in international public opinion, a hard currency, a characterisation which it has never lost since then; after all, had not the value of the Canada dollar been “tested” against the hard currency of the post-World War II era, the United States dollar? But it was not just this incident alone that cemented the hard currency status of the Canada dollar - there were other reasons over the years to support the view that the Canada dollar deserved to be viewed as a hard currency, one of which is that Canada became and remains a leading location for international mineral finance.

(World Currency Observer will next be updated on August 1, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)