March 5, 2019 (see March 20 update below). Next update: April 3, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

In 2019, so far, the beginning of the year (Dec 31/18) has emerged as an important benchmark for currencies around the world, as world oil prices reached a low at the end of 2018, and have risen by nearly 25% in the two months since then. In February, other major worldwide events have included: the postponement of the planned March 1 retaliatory tariffs by the United States on China (as the US is encouraged by the progress of ongoing trade talks); and the increased possibility of a postponement of the United Kingdom BREXIT rupture in relations with the European Union. The possible impact on the U.S. dollar of the U.S. government shutdown in early January may be washed away by continued overall strength of the U.S. economy.

Some notes on declines in individual currencies since the beginning of 2019…The Sweden krona fell by 2.5% in February against the US$, and has fallen by nearly 5% against the Euro since this time last year. The weakness in the krona in the first two months of 2019 has given rise to considerable commentary within Sweden, with attention focused on economic data showing low inflation and negative economic growth, both of which have contributed to low interest rates…Ghana: many commentators view the fall in the Ghana cedi by more than 11% in February as a puzzle, suggesting it is not warranted by current account and fiscal fundamentals, nor by a larger-than-expected late-January lowering of official interest rates (which still left them well above the inflation rate). The cedi is down by 23% since this time last year against the US$...In Haiti, February was a month with anti-government protests leading to events such as tourist evacuations - the Haiti gourde fell by more than 6% against the US$ in February, and is down by 30% since this time last year.

A number of currencies around the world have strengthened steadily against the US$ since early November 2018, including China, Japan and Mexico - exceptions to this pattern include several major currencies, such as the Euro. The Canada dollar and the Mexico peso fell by around 1% against the US$ in February, while the Iceland krona rose by around 0.6% (but is down by 19% against the US$ since this time last year). There were substantial upward movements in several South America currencies in February, including the Chile peso, the Colombia peso (up 3%) and the Peru sol. A 3.5% decline against the US$ in February left the Brazil peso down 17% against the US$ since this time last year. The Euro fell by around 1% against the US$ in February, and the United Kingdom pound (which is fast approaching the March 31 deadline for BREXIT, which may be postponed) rose by 1% against the US$ in February, and by nearly 2% against the Euro. The Kazakhstan tenge moved up by 1.2% against the US$ in February, leaving it down by 18% against the US$ since this time last year (and with no net movement since last year against the Russia rouble.) After a 7% rise in January against the US dollar, the South Africa rand fell by nearly the same amount in February. The Botswana pula rose by nearly 4% against the US$ in February, leaving it down nearly 11% since this time last year. The Japan yen and the Australia dollar fell by around 2% against the US$ in February, and the China yuan moved up by 0.5% against the US$. After a decline against the US$ in January, the India rupee moved up by around 1% in February, leaving the rupee down by more than 9% against the US$ since this time last year. Also moving up in February were the Malaysia ringitt and the Pakistan rupee. There was no net movement in the Vietnam dong in February (the host of the United States-North Korea summit). The 1.7% decline in the Thailand baht in February offset part of its upward movement during January against the US$.

Some remarks on several parallel exchange rates. The Iran riyal: the central bank published rate has not been moved from the 42,000 riyals/1$US at which it was set on August 4, 2018. Multiple sources monitored by WCO (including bonbast.com) suggest the free market rate is around 128,000 riyals/1US$, around double what it was at this time last year…The Sudan pound is said to be trading in the parallel market at 70/US$, while the official rate remains at the 47.5 it was set at last fall…The government of Zimbabwe (through the Reserve Bank of Zimbabwe, the central bank) gave official recognition to the fact that Zimbabwe bond money and RTGS bank card money (see WCO November 2018), initially set at 1/1US$, have depreciated in the parallel market to as much as 4/1US$ by mid-February 2019. The bond money and the other instruments will be denominated in “RTGS dollars”, which will trade against the US dollar on a “willing-buyer willing-seller” basis, which is currently at 3.50/1$US for ordinary transactions.

March 20, 2019 update

The hyperinflation in Venezuela continues, and history suggests that, when it ends, Venezuela will end up with a new currency arrangement. One possibility will be a new, “hard” bolivar, but a likely interim step will be, because Venezuela’s principal export is US dollar denominated crude oil, the adoption of the US dollar - dollarization. The word dollarization, as used today, means the adoption of another currency (the US$, the Euro or something else) by a sovereign country. Dollarization can be permanent, but permanent dollarization is generally what happens (and can be the best arrangement) for small countries that must live in the shadow of larger economies. Larger economies that have dollarized generally plan, at some point, to return to the benefits of having their own exchange rate, because it helps adjustments to a world of always-changing economic and trade circumstances (the reason why WCO always has subject material!). One exception is Ecuador (population 17 million), a petroleum-exporting country (also the world’s leading banana exporter) which adopted the U.S. dollar in place of its old currency, the sucre, in 1999, and which has no plans to return to its own currency, a continuation of a part of its broad policy approach (Plan de Prosperidad 2018- 2021), which has received support from the IMF as part of its assessment for its recently-announced additional lending to Ecuador. Dollarization has its benefits (the Ecuador inflation rate is essentially zero), but, as is to be expected, other problems with this arrangement arise from time to time – one recent example is that the Ecuador currency (the US$) strengthened, for much of 2018, against its neighboring countries, despite the weakness of oil prices – against the Colombia peso and Brazil real, both of which are oil exporters, and against the Peru sol (a mineral exporter). In addition, Ecuador also saw “its” currency, the US$, go up against just about every currency in the world in 2018, a big reason for the zero Ecuador inflation rate, substantially below that of its neighbouring countries, which moderated the weakening effect on the Ecuador economy of the stronger US$.

(World Currency Observer will next be updated on April 3, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)