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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

December 2, 2020. Next update: December 16, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition).

Of the roughly 175 currencies around the world (an exact count has to be qualified by, among other things, multiple currencies in single countries), the vast majority have moved up against the US$ in November, and almost as many have gone up against the US$ since this time last year. Among the exceptions, the currencies of former USSR countries have been generally weaker against the US$ in November, but there were increases by the Kazakhstan tenge, and also by the Russia rouble – the rouble was up by 4% in November, but is down by nearly 19% against the US$ since this time last year. Another exception is the Thailand baht, which rose against the US$ in November, but weakened against the US$ since this time last year – there has been a great deal of debate in Thailand, suggesting that the strength of the baht has been a major reasons for a reduction in the international competitiveness of the Thailand economy (and reports that the Federation of Thai Industries has indicated a preferred value for the baht). The Mexico peso is down by 3% against the US$ since this time last year (but rose by 5.7 % in November), and the Iceland króna is down by 8.5% against the US$ since this time last year (but rose by nearly 6% in November). South America currencies have been generally weaker against the US$ since this time last year (although mostly stronger in November). The Brazil real was up by more than 7% against the US$ in November, but down by 26% since this time last year. The Haiti gourde gave back its strength of previous months, falling by 6.5% against the US$ in November, but still up nearly 30% since this time last year. The Sierra Leone leone fell by 1% against the US$ in November, and is down by 5% since this time last year. Looking at the performance of world currencies against 3rd currencies, the story is more nuanced, although it is more clear in connection with the Euro: the Euro has risen by nearly 8% against the US$ since this time last year (up nearly 3% in November), so virtually all non-US$ currencies around the world have weakened against the Euro over the last year, although their November performance is more mixed. Also, in November, many currencies have strengthened against the Japan yen (the yen was up slightly against the US$), while the performance against the China yuan, which rose by 1.7% in November against the US$, has been mixed. Commodities markets: metals prices in US$ terms generally rose in November, with the exceptions of gold and silver. World oil prices are down by 20% since this time last year, while North American natural gas prices are up by more than 25%.

There have been more announcements in November of the possibilities of the introduction, around the world, of effective vaccines against Covid-19. WCO is hearing that these announcements should be regarded with cautious optimism but, nonetheless, they are regarded as largely responsible for rises in world equity (stock) markets, which are also being supported by interest rates that are close to zero in many countries, and by increased world savings due to reductions in consumption. As to explanations for stronger currencies around the world against the US$, trade deficits and current account deficits are down in many countries, as economies weakened by the pandemic are less able to finance imports. Also to be noted is that the smaller tourism-based economies have turned out to have had an advantage in the fight against Covid-19, because they are often islands (many of these economies have fixed exchange rates). One divide in the influence of trade deficits on currencies is between emerging and developed countries. Emerging countries have less capacity for borrowing, so reductions in trade deficits (increases in surpluses) can flow through more to their currency performances. Developed countries can cushion trade performance with borrowing or from their savings, so there is less of a trade deficit-currency link. Also to be mentioned are the examples of countries which are posting current account surpluses during this year of the pandemic, which include China, Japan, Germany, Taiwan and Vietnam.

The Liberia dollar was just one of the currencies of the world that rose against the US$ in November 2020, but its upward movement was among the largest in the world: up by over 18% in November (much more than the 2.5% rise of the CFA franc, for example, which is anchored to the Euro), to around 155/1$US. The situation in Liberia is notable for several reasons: the economy is highly dollarized (one measurement: 2/3 of bank deposits are denominated in US dollars), and there has been a shortage of Liberian currency notes in the last few months, which has occurred against a backdrop which includes the implementation of an orderly de-dollarization strategy over the last 10 years, which has included open discussions at economic and financial fora. So the downward pressure on the US$ against the L$ means that the person-in-the street wants to sell US$ and buy Liberian dollars, but finds there is a shortage, which has not only increased the value of the Liberia dollar, but also means that out-in-the-street cash transactions can occur at an exchange rate which is better than inside the bank. The central bank has just confirmed that the central bank policy interest rate is being maintained at 25%, against an inflation rate of around 15%. The central bank also indicates that foreign exchange reserves are below the 3-months-of-imports finance benchmark, and also a worsening trade balance. Liberia (population: 5 million) is on the west coast of Africa, its primary commodity exports are rubber and iron ore, and the countries surrounding Liberia are Sierra Leone (currency is the Leone), Guinea (Guinea franc) and Côte d'Ivoire (in the CFA franc zone).

(World Currency Observer will next be updated on December 16, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition). For permission-to-quote enquiries, e-mail World Currency Observer at WCO@briargreen.com.)