Headline for .     Since the beginning of 2018, despite the Covid-19 pandemic, currencies around the world are generally down against the United States dollar.     
World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

October 1, 2021 (see October 19 update below). Next update: November 2, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

Around the world, a number of currencies gained strengthened in the first days of September against the US$, generally attributed to a United States jobs report suggesting a slowing in the U.S. recovery from the pandemic (and so, less chance of a rise in U.S. interest rates), but then weakened through the rest of the month, with the result often being little net change (slightly positive or negative, or close to zero) on the month. The Jamaica dollar rose by 2.5% against the US$ in September, and is now down by 12% since before the pandemic (see below). The Brazil peso rose by 2.5% against the US$ in September, and the Chile peso fell by 3%. The Euro, as well as a number of other European currencies, showed a net decline against the US$ in September 2021 of around 2%. The Hungary forint fell by 5% against the US$ in September 2021, and has now registered a decline since before the pandemic. The Poland zloty fell by 3% against the US$ in September, and the Turkey lira fell by 6% over the month against the US$ (down nearly 50% since before the pandemic). The Russia rouble was up by 1% against the US$ in September, and is down by 17% since before the pandemic. The South Africa rand fell by 4.5% against the US$ in September 2021, and the Angola kwanza rose by a little more than 6% (down by 26% since before the pandemic). The Zambia kwacha fell by 5.5% against the US$ in September 2021. The Taiwan dollar was up by 2.5% against the US$ in September, and is up by 7% since before the pandemic. The South Korea won fell by nearly 4.5% against the US$ in September 2021, and the North Korea won was up by 3.5% against the dollar (see below). The Burma kyat fell by 10% against the US$ in September, and the Thailand baht was down by 4% (down by 14% since before the pandemic). The US$ prices of a large number of agricultural commodities, both tropical and temperate, declined in September 2021. Metal prices also generally weakened in September, with one exception being aluminum, up by nearly 10%, with concern about bauxite production interruptions in one of the world's major supplier, Guinea (on the west coast of Africa). World oil prices in US$ terms rose by 7.5% in September, and are now up by 17% since before the pandemic. Gold prices are up by 16% since before the pandemic, after a 3% decline in September 2021.

A shortage of oil revenues in Nigeria, attributed to production cuts ordered by OPEC (90% of Nigeria foreign exchange income comes from oil exports) has led to a shortage of foreign exchange – oil prices themselves are not, at the current time, considered to particularly low by Nigeria government authorities. So, over the last few months (particularly in August 2021) the government has moved to reduce the supply of foreign exchange to Nigerians, mostly by taking measures to shrink the BDC market, but also by stepping up enforcement of unpermitted (but sometimes tolerated) means of acquiring foreign exchange, such as foreign exchange activities by the microfinance bank sector (the status of microfinance banks in Nigeria was formalized in 2005, under the regulation of the central bank of Nigeria). Another example: the central bank has announced it is targeting the use of forged or cancelled foreign travel documents and papers to obtain foreign exchange. The Nigeria foreign exchange market is formally segmented, with four major windows: the central bank (oil sales foreign exchange), the commercial banks, Investment and Export (I&E)receipts of foreign exchange, and BDC (Bureau de Change, the parallel sector, comprising foreign exchange dealers and others). A consequence of the crackdown is that it is now technically impossible to obtain country-wide data on the parallel exchange rate in the BDC sector (a major country-wide source suspended its information activities on September 17, although, of course, such quotations are still available in the street). Nigeria’s long run goal has been the elimination of the parallel foreign exchange market, not by interdiction, but by working towards the convergence of the official and parallel exchange rates. But, due to the pressures at the current time (including Covid-19), it has moved in a more restrictive direction.

There is a general perplexity regarding the precise reasons why the North Korea exchange rate authorities have, apparently, pushed up the US$ value of the North Korea won in September 2021, which is contrary to the steadiness or downward movements of the currencies of neighboring countries in the same month (such as China, Japan and South Korea). The official US$ value of the North Korea won has, apparently, long been set against a basket of currencies, which largely explains why the value of the won increased throughout the pandemic (although there were some external commentators who pointed out that if might have been more appropriate to have softened this upward movement), but then reversed in the first months of 2021, with the North Korea won weakening from around 104/1$US in February to around 110 in August, then strengthening to around 106 at the end of September, not too far from its February peak. It will be interesting to see what happens in October.

Another interesting currency movement in the month of September 2021 (but for different reasons) was the rise in the US$ value of the Jamaica dollar, continuing a rise in August 2021 – this jump has been very noticeable in the context of the performance of other currencies in the Caribbean area, and has given rise to much commentary. Among the reasons cited for this month’s rise in the Jamaica dollar: the Bank of Jamaica is said to be reducing liquidity in the financial system to work against inflation without raising interest rates; strong remittances inflows from the United States and elsewhere; and the arrival, at the end of August, of US$500 million from the International Monetary Fund. But it should be added that one characteristic of the Jamaica dollar is that its value has many ups and downs – for example, on three separate occasions this year, the Jamaica has been stronger than the current value of 147/1$US. Also, the Jamaica dollar is some way from its pre-pandemic value of 125.

October 19, 2021 update

The Pandora Papers data base of offshore holdings (money invested in funds situated in the lower tax jurisdictions of the world) is outlined in an article WCO has seen, from the International Consortium of Investigative Journalists, entitled “Offshore havens and hidden riches of world leaders and billionaires exposed in unprecedented leak,” which indicates that they have access to a data source of 11.9 million files (documents, spreadsheets, images) from 14 offshore services firms, and which they are using for a series of articles identifying offshore clients, a number of which are current and former heads of government. From an exchange rate point of view, WCO is most interested in those countries where prominent people appropriate government funds to their personal benefit, in amounts which are large in relation to their balance of payments, which generally occurs in the less developed countries. (In the more developed countries, the principal issue raised by the data base of offshore funds is tax evasion). One of the long lasting effects of Covid-19 is likely to be a crackdown on such practices, due to the need to finance increased debt, arising from government spending necessitated by the pandemic (see below).

It is generally agreed that one of the lasting effects of Covid-19 will be a need for more tax revenue. The OECD/G20 Base Erosion and Profit Shifting Project has resulted in an agreement (the Framework) among 136 tax jurisdictions (consisting of countries and, in a few cases. specific regions within sovereign countries). The aim of Pillar One of the Framework is for companies to shift their tax base (profits, revenues, etc.) to the jurisdiction where the business which is generating this tax base actually takes place, which is generally away from lower tax jurisdictions. The aim of Pillar Two of the Framework is a minimum tax of 15% on global corporate income for the larger multinational corporations of the world, including the digital/on-line companies headquartered in the United States and elsewhere (who were, in any case, facing additional taxes). The OECD has been quoted that it expects to see an additional US$150 billion in annual tax when these proposals are fully enacted, which is scheduled to be 2023. The legal status of the Framework is characterized as a “multinational convention” or a “common approach” with “model rules” and, as such is not a treaty, which means individual country implementation of the terms, and its privileges, are possible without negotiations, so it is flexible on the upside. (This will also avoid conflicts with the large number of current tax treaties among G20 and other countries, all of which have been the result of long negotiation processes.) And, because of this flexibility, there will be considerable leeway on how individual countries choose to punish other countries not in compliance. And, as noted, more than the legal requirements and tax evasion issues, what will be driving compliance will be the need for all countries around the world to finance the increased debt which has been necessitated by pandemic-related financial requirements. Among the items of interest to WCO: several signatories to the pact do not have their own currency, such as the United Kingdom Channel Islands and Gibraltar (which use the UK pound), Greenland (the Denmark kroner) and the Faroe Islands (also the Denmark kroner). Among members of the European Union, the only country not to sign is Cyprus, which has been actively involved in the discussions, but is said to not have the required permission from Turkey to sign (although Turkey is a signatory to the accord, along with all the other Balkan and East Europe countries, including hold out Hungary). In Southern Asia, India is in, while the countries which surround it, such as Bangladesh, Pakistan and Sri Lanka, are not in (also out are most of the former USSR "stan" republics, but Kazahkstan is in). Among Southeast Asia countries, Thailand and Vietnam are in, while Laos is not in (Laos may become a player in the world of crypto currencies). Another crypto currency country which is not in is El Salvador. In the Middle East, Saudi Arabia is in, and Kuwait is not in. Four countries that were involved in the negotiations and discussions - Kenya, Nigeria, Pakistan and Sri Lanka - have not yet joined the agreement. Smaller country concerns included recognition that the deal would increase corporate tax rates, which had been set low to attract foreign investment (such as Hungary and Ireland). And, because they are participating in the Framework, it will be easier for G20 countries to justify increased corporate tax rates, particularly on the digital industry.

Restrictions in a couple of countries have given rise to a couple of financial innovations. One of them is the revival of the idea (which is considered to be rather kooky) of a US$1 trillion platinum coin, which could (perhaps) be issued by the United States government (the Mint), then bought by the United States central bank (Federal Reserve), which would credit the U.S. government bank account, as a way of getting around the United States government debt ceiling – a US$1 trillion gold or silver coin issued by the Mint would specifically not be legal. Another innovation is in Lebanon, where there are reports of businesses avoiding restrictions on US$ bank withdrawals from Lebanon banks (imposed as part of the government response to the Lebanon financial crisis) by writing bank withdrawal orders (such as US$ checks drawn on Lebanon banks, where the drawer is also the payee), which are then accepted as or sold for US$ cash, at discounts from the face values which, some say, are as high as 50%. Financial innovations as tactics to get around restrictions have many precedents. One of these, from the period of the Second Bank of the United States in the early 1800s, had an officer of the Bank write a check, drawn on the Bank, payable to another officer of the Bank, who would then endorse the check in his capacity as an officer of the Bank – the resulting check was then accepted as money, thus getting around the requirement that the Bank president had to sign all banknotes issued by the Bank. (This example has been mentioned by Galbraith, among others).

(World Currency Observer will next be updated on November 2, 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.)