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World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

May 1, 2015 (See May 20 update below. Next update: June 3, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)

The Euro and the Japan yen showed little net change on the month-there was a period of weakness in the early part of April which later was reversed. The United Kingdom pound showed similar movement, but moved up against the US$ by around 2%. Besides the UK pound, there was a long list of currencies around the world which were up 2-3% on the month against the US$, including: Canada, Iceland, Chile, Norway, Czech Republic, Israel, Philippines, Singapore, South Korea, Taiwan and others. Oil prices, denominated in US$, have gone up nearly 20% on the month, and gold prices are up just under 2%. The Brazil real and the Colombia peso were up strongly on the month against the US$. The Tajikistan somoni is down around 9% on the month against the US$ (operations of currency exchanges in Tajikistan have been suspended since April 16). The Russian rouble continued to strengthen in April. The Gambia dalasi is down 20% on the month against the US$.

Just-released estimates, which suggest that US economic growth was close to zero over the first three months of 2015, are expected to bring calm to currency markets around the world, reducing concerns that currencies have to cope with increases in US interest rates. And, as noted above, there have also been increases in oil prices, although they are still 50% of last year’s levels.

Nepal, incredibly hard-hit by the April 25 earthquake, has a population of nearly 30 million, borders on China (Tibet) and India (Bihar,Uttar Pradesh), and is close to both Bangladesh and Bhutan–all of these areas were also hit by the earthquake, although to a much lesser extent than Nepal. Besides the 5000+ loss of life in Nepal, the material cost of the destruction is expected to be very large, and beyond the financial capacity of Nepal, so international support is essential. Regarding a first approximation of the extent and costs of the damage, a good place to start is with the World Health Organisation, which says that 30 of Nepal’s 75 districts have been impacted, with 11 priority districts identified as in greatest need of immediate humanitarian relief. ( May 20, 2015 update: Nepal suffered a second earthquake on May 12. To contribute to estimates of earthquake losses, the Nepal banking system is undertaking an assessment of damages, based on the experiences of its borrowers (such as impact on borrowers’ collateral and on their ability to repay loans), and on what the banks are hearing about the experience in non-bank sectors.)

Iceland has had strict capital controls in place since 2008, which prevent holders of krona-denominated assets (bank deposits, loans, securities, derivatives) from conversion into other foreign currencies, unless the transactions are linked to specific flows of goods and services, or to a very short list of other transactions, such as the settlement of inheritances. Undoing these controls would normally be expected to push the krona down substantially, even though the financial and foreign exchange world has changed by a great deal since 2008. In this context, the release by the Icelandic government earlier in April of a lengthy official paper (written by Frosti Sigurjonssson, commissioned by Iceland’s Prime Minister), proposing that Iceland require banks to back all of their krona deposits with reserve deposits at the Iceland central bank (100% reserves), suggests that Iceland thinks that strict controls on Icelandic banks will be one component of its approach to the financial system when capital controls are lifted. One verbatim quote from the Report gives the flavor of its very direct tone: “ It is fair to say that Iceland’s monetary history has been a turbulent one. Currency controls in the 1920s to the 1950s were followed by chronic inflation in the 1970s to 1980s, with annual inflation reaching a high of 83% in 1983. In 1981 it was considered necessary to redenominate the krona with 100 units being replaced by 1 new unit. After the moderate 1990s, came the booming 2000s, that ended with a dramatic crash in 2008. Banks collapsed and the value of the ISK dropped by 50% in one year. Capital controls were introduced late 2008 and are still in force six years later. The Central Bank of Iceland was established in 1961 with the aim to promote price stability. Five decades later, the ISK had lost 99.7% of its purchasing power.

May 20, 2015 update

The May 7 elections in the United Kingdom returned a decisive (but thin) Conservative majority. Over the last year, the pound is down over 7% against the US$, and up over 10% against the Euro. The UK economic mix is striking, especially compared to most of its neighbours in Western Europe, and includes: below-average unemployment (which helped the Conservatives to their victory), and an above-average fiscal deficit (despite the Conservative policies of the past few years). There is little movement in consumer prices, but real estate markets, especially within transit range of London, have been very strong. One engine of economic performance for the UK over the last 30 years, North Sea oil and gas, is running down – one sign has been increased costs of production.

In the United States, the forthcoming legislation (“fast track”), which will give President Obama the authority to negotiate freer-trade arrangements with several Pacific Rim (Trans-Pacific Partnership) countries, includes the following section on currency manipulation practices: “(11) CURRENCY.—The principal negotiating objective of the United States with respect to currency practices is that parties to a trade agreement with the United States avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other parties to the agreement, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate.” There is also a separate bill in the Congress with many clauses on currency manipulation, including how it will be defined, how its impact on the United States economy will be measured, and penalties for offending foreign countries (e.g., countervailing duties).

(World Currency Observer will next be updated on June 3, 2015. At the 2015 FIFA Women's World Cup of football (soccer), WCO staff are supporting Canada and Côte d’Ivoire, but also note that it would be a major upset for “Les Éléphantes” to eliminate one of Germany, Norway or Thailand in Group B. Visit Search to look at past issues of World Currency Observer (brochure edition).)