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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

September 7, 2016. (see September 21 update below). Next update: October 5, 2016. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro, which has had no net change against the US dollar since a year ago, also had no net change in August, while the Japan yen has been up 14% on the dollar since this time a year ago. In North America, the Canada dollar is up nearly 2% against the US$ since a year ago, while the Mexico peso is down nearly 11% since this time last year. The Colombia peso is up 5% on the month against the US$. Eastern Europe currencies strengthened a little on the month against the US$, in line with movement by the Euro. The Ukraine hryvnia was down nearly 3% on the month, and over 14% on the year, against the US$. The Azerbaijan manat, a currency strongly linked to oil price and oil market developments, was down nearly 6% on the month, and by more than 60% since a year ago against the US$. Generally, with the exception of Azerbaijan and the Ukraine, currencies of former USSR countries were stronger in August against the US$. The Iran rial fell over 14% in August against the US dollar. Indices of rates for seaship transportation strengthened in August, but are still down nearly 20% since this time last year.

The Mongolia currency, the togrog, fell by more than 8 per cent against the US dollar in July. Mongolia boosted, in July, its 2016 budgetary deficit, by including, in net lending (Эргэж төлөгдөх цэвэр зээл), programs which had formerly been off-budget. Under the new measurements and reporting rules, the Mongolia 2016 deficit looks like it will end up being in the neighbourhood of 20% of GDP, and at least triple the 2015 level.

The United Kingdom pound had dropped substantially in the first half of August (see the August 2016 issue of WCO ) , but then moved back up in the second half, the result being almost no net change in August (but down more than 16% against the US$ since this time last year). Some earlier pessimism with regard to the UK economy appears to have been reversed.

WCO remarks, in reflecting on the G20 Summit, which just wrapped up in Hangzhou China, that there is a fairly long list of major economies with shrinking economic activity (negative economic growth), among them being: Nigeria and South Africa (the two biggest economies in Africa), Russia (the biggest economy among former USSR countries), Brazil and Venezuela (over half of South America’s economy). One of the topics of discussion at the Summit, and in the final communique, was excess capacity and over-production in the worldwide steel industry, with the focus being particularly on China.

There has been a huge development regarding tax havens for corporations. Apple is an example of major multinational corporation with substantial profits, which set up headquarters in Ireland (a full member of the European Union) to take advantage of Ireland's low corporate tax rate. But, last week, the European Commission ruled that, under EU rules, Ireland's corporate tax rate is an illegal subsidy to Apple. Ireland was required to demand that Apple pay, immediately and with little right of appeal, ten years of back taxes. This is not the first time this has happened in the EU - previously, similar rulings were made for Fiat and Starbucks. What is striking is the large amount of money involved: a whopping 13 billion Euros, plus accumulated interest (perhaps Euro 15 billion in total?), enough to make a substantial reduction in Ireland's national debt, but also easily within Apple’s ability to pay (less than 10% of either of Apple's cash reserves or 10 years of profits). Ireland's official response is paradoxical, simultaneously protesting the EU measure which will outlaw its corporate tax structure and its attractiveness to multinationals, but at the same time, hardly able to really protest the "pot of gold" that it will receive. Also currently under review by the European Commission: the tax treatment of Amazon and McDonald's, both apparently domiciled in a more widely recognised corporate home, Luxembourg.

Also on the issue of offshore holdings, WCO notes the death of Uzbekistan’s president Manat, who had been in power for over 25 years, reaching right back to the former USSR, and whose family has accumulated massive offshore wealth (houses, bank accounts, etc).

September 21, 2016 update.

WCO notes the approach of the landmark accession of the China renminbi yuan to a very exclusive club: inclusion in the SDR basket as of October 1, 2016, with a share that works out to approximately 11% of the value of an SDR. Earlier in this month, the World Bank issued in China, at a 0.49% yield, 3 year SDR-denominated bonds (SDR500 million, equal to roughly US$700 million). There have been some comments on yuan volatility in the last few days, along with a huge increase in a key interest rate, the overnight yuan HIBOR, which is certainly keeping the yuan from falling farther (the overnight yuan HIBOR is currently at 12.1%, which is more than twice the one year yuan HIBOR). And a parenthetical note on how strength in the Japan yen (up around 15% since a year ago) has provided incentive for US$ thinkers, and an even greater incentive for China yuan thinkers, to hold Japan long-term bonds in spite of their negative yields, which are among the lowest in the world.

(World Currency Observer will next be updated on October 5, 2016. Visit Search to look at past issues of World Currency Observer (brochure edition).)