April 1, 2014 (see April 15 update below)

With little change on the month, the Euro is up 5% from a year ago against the US$ - the yen is down 6% against the US$ from a year ago. The Mexican peso was up more than 1% on the month. In South America, Brazil, Chile and Colombia exchange rates were significantly stronger against the U$ in March, while Venezuela may be on verge of success in structuring its foreign exchange regime (see below).There have been double-digit drops against the US$ from a year ago for most former –USSR currencies, while many Eastern European currencies strengthened against the US$. In Africa, the Malawi kwacha is up 3% against the US$ on the month, and up 6% since the beginning of2014. The Chinese yuan is down a little over 1% on the month. The Australian dollar is up 3% on the month, and the Indonesian rupiah is up by a similar amount. The Pakistanis rupee is up more than 6% on the month, and the Indian rupee is up by 3%. There have been some very large rises over the last year in the prices of key tropical commodities (see chart above), with a number of impacts on producing countries, including inflation and trade balances.

For the Venezuela bolivar fuerte, the official rate is 6.3 bolivars/US$, the Sicad 1 rate is 10.7, and the new Sicad 2 rate is at 49.8098 – the most widely-cited quotes for the offshore parallel rate are around 70/US$. Here is a summary of the Venezuela foreign exchange rate structure after the introduction of Sicad 2 on March 24, 2014, which, at this point, looks like it is going to be effective at supplanting the parallel foreign exchange market (“contribuirá con la neutralización del paralelo”), and at redressing shortages of US$ and other foreign exchange which were being experienced by several import sectors. (WCO notes that this may be the completion of a four year-old Venezuelan foreign exchange episode, which began when the government of Venezuela declared the parallel foreign exchange market to be illegal, in May 2010). The Venezuela foreign exchange system is administered by CENCOEX, a Venezuela government agency, through the Banco Central de Venezuela. Projected Venezuelan foreign exchange requirements of around $60bn for the remaining nine months of 2014 are to be supplied at a combination of: the fixed CADIVI Reference Rate of 6.3 ($42.7bn); the auction-set Sicad 1 rate (currently 10.7) which is set weekly ($9.0bn); and the new Sicad 2 rate (currently 49.8098/US$, comparable to a parallel exchange rate of 70), set daily in the free market with a promise of limited official intervention. The net foreign exchange supplied at the Sicad 2 rate may be in the neighbourhood of $5.0bn for the rest of 2014, with non-government entities, including tourists, permitted to buy pesos ( i.e. offer dollars ) in this segment of the market. Remaining foreign exchange issues to be resolved include those related to barriers on the repatriation of profits for foreign firms operating in Venezuela.

The recent weakness of the Chinese yuan has led to some suggestions that the yuan is moving in the “wrong” direction, and questions as to whether there was an intention by Chinese authorities to punish speculators betting on continual rises in the yuan. In this regard, WCO reviewed some of the grim warnings from Chinese officials back in 2010 on the problems with hot money (热钱 rèqián), at a time when money was pouring into the emerging markets of Asia. Among these expressions of concern was the following: “Although capital inflows to Asia can spur investment and economic growth, the resulting equity prices and currency appreciation, however, can lead to asset bubbles and inflation, posing stark challenges for the monetary policy management of the relevant countries and the balance of payments and financial stability. What is particularly worthy of attention here is that hot money (热钱 rèqián) is extremely unstable. Once the economic recovery situation improves in developed economies and the US dollar starts to appreciate as its devaluation bottoms out, hot money would whoosh out of emerging economies with a reversal of capital flows, and finance turbulences are very likely to occur in some economically vulnerable nations. And the countries and regions should keep vigilant to guard against it.”

April 15, 2014 update

Nigeria has updated (rebased from 1990 to 2010, a long time interval) the measurement and reporting of its Gross Domestic Product (which is the total market value of all “final” goods and services produced within a country). One result of the exercise, which included the measurement of new economic activities (up from 33 industries to 46) and increasing by over ten times (to 851,628) the number of units in its sample frame, is a 75%+ increase in the estimated size of Nigerian GDP, from US$258bn to US$454bn (2012 figures, using a naira rate of 157/US$ - the current rate is 155.74/US$). The major driver is a nearly four-times increase in the measurement of the value of services, primarily attributable to updated measurements of information and communication, and of trade (wholesale and retail). The rebasing suggests that the Nigerian economy is the largest in Africa, ahead of South Africa (although GDP per person is still more than twice as high in South Africa than in Nigeria).

(next update: May 1, 2014)