March 2, 2021. Next update: March 17, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

Around the world, the US dollar drifted downward against most currencies through virtually all of February 2021, and then bounced back in many countries in the last two days of the month, moderating, though generally not eliminating, the overall February weakness. The Canada dollar is up by 5.5% against the US$ since this time last year after a 0.5% net increase in February-the Iceland krona was up 3% in February against the US$. The Jamaica dollar fell a further 3.5% in February after falling in January against the US$, and is now down 10% since this time last year. The Trinidad and Tobago dollar has shown a small net decline against the US$ since this time last year. The Chile peso rose by 3.5% against the US$ in February, and is up by 12% since this time last year, making it the strongest currency in South America (generally attributed to the strength in copper prices, as copper is more than half of Chile export revenues). The Brazil real, with no net movement against the US$ in February, is down by 24% since this time last year. The Argentina peso is down by 45% against the US$ since this time last year. The United Kingdom pound rose by 2% against the Euro in February 2021, leaving it down slightly compared to where it was at this time last year against the Euro. The Euro was down slightly in February against the US$, and is up by 9% since this time last year. The Swiss franc was down by 1.5% against the Euro in February. The Poland zloty rose by around 1% against the US$ in February, and was up by 5.5% since this time last year. The Russia rouble reversed much of its 3% January fall, rising by 2% against the US$ in February 2021, leaving it down by around 10% against the US$ since this time last year. The Iran riyal fell by 4% in February 2021, and is down by 80% against the US$ since this time last year. Sudan closed the gap between the market and parallel exchange rates for the pound against the US$ in February (see below.) The South Africa rand is an example of a currency that strengthened all through February, and then weakened in the last couple of days of the month, finishing February with no net change. The rand is, however, up 3.5% against the US$ since this time last year. The Australia dollar (which is used by Kiribati and Nauru, and is linked 1:1 to the Tuvalu dollar) was up by 1% against the US$ in February 2021. The Australia dollar is also up by 16% against the US$ since this time last year (the New Zealand dollar showed comparable movement). The Japan yen fell by 2% against the US$ in February, and is up by 1.5% against the US$ since this time last year. The Fiji dollar is up by 7.5% against the US$ since this time last year. The India rupee fell by 1.5% in February against the US$. The Pakistan rupee was up by 1.5% in February, and is down by 3% since this time last year (the India rupee is down by 2% since this time last year). Many major commodities showed sharp upward movements in February (such as copper), with the notable exceptions to this including gold and silver.

Sudan (in the northeast of Africa, population of 42 million), on February 21, moved the permitted (indicative) exchange value of the Sudan pound from 55/1$US to the then-prevailing parallel market midpoint rate of 375 (350/400). The move reflected the reality of inflation in Sudan, which has increased sharply in the last couple of months to more than 350%; the exchange rate move was expected late last year, but was delayed for reasons said to be political. The new exchange rate regime has been characterized as a partial float, with the central bank ready to intervene to maintain the announced rate. Supporting the move (some would say, pressuring the Sudan government to make the change) were international lending agencies and major foreign governments, whose assistance Sudan needs to service its foreign debt, a situation which has been worsened by the financial pressures of the Covid-19 pandemic, which, of course, is the situation many countries are in right now. Statements by multinational lenders indicate that the move will open the door to other types of hard currency financial assistance, which was being held back because the too-high exchange rate from hard currencies diminished the Sudan pounds that could be obtained–such donors are always reluctant to channel their funds through parallel markets. Also, the 55/1 exchange rate was holding back foreign exchange remittances to Sudan from Sudan citizens living and working abroad, who of course wanted to use the “true” 375/1$US exchange rate. The too-low exchange rate was also motivating gold producers to understate and smuggle their production to sell for hard currency in world markets, instead of selling locally for Sudan pounds, which also reduced the royalties and taxes received by the government – gold is the principal Sudan mineral export, complementing agricultural exports, such as cotton. Among measures to offset the inflationary impact of the exchange rate change are announced transfers to families. Sudan has a dual banking system, one conventional Western and the other Islamic. Another state in Africa facing similar issues: Somalia (population: 15.5 million).

An analytical observation: countries with fixed exchange rates must rely on other means to pursue balance in their overall external trade, in the practical sense that payments for imports must, sooner or later, be limited in some way so they do not habitually exceed export payments or other sources of finance. (Measures other than exchange rate changes in pursuit of trade balance used to be grouped together under the term of “internal devaluation”.) When a fixed exchange rate is in place, countries rely more on tariff levels to moderate import payments, and the timing and the types of publicity associated with tariff changes are radically different than for exchange rate changes (tariff changes are much less noticed than exchange rate changes, with noticeable exceptions in situations such as the China-U.S. trade war, which involved two-way tariff changes for thousands of commodities). Higher tariff levels also contribute to government revenues, which are a substitute for domestic taxes, and are also a substitute for debt-financed borrowing (foreign or domestic). Countries with flexible exchange rates are more likely to enter into trade agreements with each other that fix tariff levels for long periods of time, as they have the option of exchange rate adjustment. Multilateral agreements covering both fixed and flexible exchange rate countries do not fix tariffs, but, rather, they bind them (set maximum tariffs), to leave countries the flexibility to adjust tariffs, when needed, to obtain external balance and government revenue.

(World Currency Observer will next be updated on March 17, 2021. 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.)