World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

July 1, 2015 (Next update: July 15, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)

Both the Euro and the Japan yen are down more than 20% over the last year against the US$. Other currencies around the world with similar amounts of downward movement include the Mexico peso, most Eastern European currencies (although these have been up on the month, in the 1 to 3% range), most African currencies, the Australia and New Zealand dollars, and the Malaysia ringitt. Among the currencies showing a more moderate downward trend against the US$ since this time last year are the Taiwan dollar and Phillipines peso, the Canada dollar, the currencies in countries around India, and most countries around South America, one exception being the 40%+ downward movement in the Brazil real. The Russian rouble is down nearly 65% since this time last year against the US$. Showing almost no movement against the US$ since this time last year is the China yuan - it has been remarked that Chinese stock market indices, which had risen strongly over the last year (e.g. more than 50% since the beginning of 2015 to their recent peak), are in the midst of a sharp reversal which began last week.

With regard to developments in Greece, the June 30 impasse, we think, could have been resolved (an impasse based on refusal of Greece to agree to more budgetary stringency in return for the release of the latest tranche of loan funds from the European Union, and the decision of Greece to call a referendum on July 5). WCO has been focusing on the capital controls issues related to the bank run in Greece, as they might relate to alternative currency arrangements for Greece. The bank run in Greece (more precisely, the conversion of bank deposits in Greece into Euro cash, by businesses and those segments of the Greek population who still have substantial deposits, despite the performance of the Greek economy over the last few years) has been going on for some years. It accelerated sharply up to the weekend, however, up to the time the European Central Bank announced (June 28) it was providing no more additional liquidity to the Greek banking system, with smaller depositors getting involved. One of the roots of the bank run which is unique to Greece (e.g., not really a factor in the Cyprus crisis of 2013) is the concern that there would be a conversion of Greek Euro-denominated bank accounts to Greek drachmas or to a 2nd class Euro, at a lower exchange rate, resulting in an instant financial loss. (The approach in Cyprus was more brutal –a 47.5% annulment of bank deposits above 100,000 Euros). Greek depositors safeguarded themselves against this by converting as much as they could into Euro cash. The Bank of Greece does not have authority for the issue of unlimited amounts of Euro notes, but rather only for the amount assigned to Greece by the European Central Bank (the National Central Bank quota, part of which is the now-frozen Emergency Liquidity Assistance from the ECB). The Euro bank notes issued by Greece are identifiable as Greek, due to the Y-prefix to the serial number – every European country has its own prefix. But, in practice, Euro notes from all countries appear everywhere in the European Union, so cancellation or devaluation of just the Greece-issued Y Euro currency would have an impact far beyond Greece. This doesn’t make such an action impossible, but rather more unlikely (but we don’t know for sure yet what the EC will do.) But it does point out that Greek holders of Euro currency also had to move their Euros out of the country, before the imposition of restrictions on movement of Euros outside Greece (this was a feature of the capital controls in Cyprus). One result is a lack of cash in the country at the same time that cash outstanding is very high. One more observation: the Euro bank runs are qualitatively different than the national bank runs that used to exist in places like the United States, runs which were eliminated by the introduction of deposit insurance for accounts above a threshold amount (e.g., $100,000 per account). Yet another observation: capital flight from Greece to other parts of Europe is not the same as capital flight from the European Union, which would, if it had happened, have been a greater concern to the EU.

(World Currency Observer will next be updated on July 15, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)