January 5, 2021 (see January 20 update below). Next update: February 3, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

2020, the first year of the Covid-19 pandemic, is over, and while the pandemic has gotten worse in many (but not all countries), an end is in sight for a number of countries, as vaccines are being distributed, and vaccine distribution has been a major positive influence on financial markets around the world. Currencies around the world generally moved up against the US$, looking at the whole of 2020. Also interesting has been the movement of the prices of groups of commodities in world markets, besides gold and oil, with the typical pattern being weakness in prices moving into the March/April 2020 lockdown, and then a gradual recovery for the rest of the year, which often ended with the commodity price much higher at the end of 2020 than it was at the start of the year

After strengthening in December, the Mexico peso was down by 5.5% against the US$ over 2020, while the Canada dollar was up by 1.5% in 2020. The Jamaica dollar rose by 3% against the US$ in December, so the Jamaica dollar is down by 7% on the year. The Costa Rica colon fell by 7% against the US$ in 2020. Cuba moved from the CUC convertible peso (1CUC/1$US) to the CUP national peso (24/$1US) on January 1, but this is not a devaluation. South America currencies were generally up against the US$ in December 2020. After rising by 3% against the US$ in December, the Brazil real is down by nearly 30% since the beginning of 2020. The Chile peso rose by nearly 5% against the US$ in 2020, after rising by more than 7% in December. The Euro was up by 8.5% in 2020 against the US$, after increasing by just over 2 % in December. The United Kingdom pound was down by 6% in 2020 against the Euro, after a slight upward movement in December (the UK has now fully withdrawn from the European Union, under the umbrella of a free-trade arrangement.) The Turkey lira rose by 6.5% against the US$ in December, and fell by 23% over the whole of 2020. The Russia rouble was down by 18% against the US$ in 2020. Libya has moved the official rate for the dinar from around 1.36/1$US to 4.48/1 on January 3/21, closing the gap with the parallel rate, which is around 5.2/1$US. (Libya also has restrictions on the amount of foreign currency each citizen can buy from commercial banks). The Iraq dinar was moved down by around 19% against the US$. The official rate of the Syria pound was devalued sharply in June 2020, and is now at 1250 (2890/1$US in the parallel market). The Algeria dinar was down by 2.5% against the US$ in December, and down by 11% over the whole of 2020. The Ethiopia birr was down by 24% against the US$ over the whole of 2020. Africa currencies generally rose against the US$ in December 2020. The South Africa rand was up by 5% in December against the US$, and was down by 5% over the whole of 2020. After a 4. 5% rise in the Australia dollar against the US$ in December, it was up 9% on the year. The China yuan was up by 6.5% on the year against the US$. The India rupee was down by 2.5% against the US$ in 2020, after a rise of 1.5% in December 2020. There was essentially no net movement of the Vietnam dong against the US$ in 2020. The list of commodities with double digit price increases in 2020 is large. Among the smaller list of those with declines in US$ prices over 2020 are cocoa, coffee, coal and oil. Throughout the 2020 year of the pandemic, commodity prices in US$ generally weakened at the start of the year, bottoming out on or shortly after the March/April 2020 worldwide shut down, then steadily increased over the last six months of the year.

At the end of a year during which most currencies around the world moved up against the USS$, in the face of on an increasing US trade deficit, Switzerland and Vietnam were added to the United States list of currency manipulators in December 2020, implying that the Swiss franc (now at 1.13US$/1$US, up 9% since the start of 2020, and also up against the very strong Euro) and the Vietnam dong (now at 23100 dong/1$US, with little net movement against the US$ in 2020) were, in ways not specified by the US (because such US assessments are based on things like current account deficits and increases in foreign exchange reserves, not on actual evidence of specific actions taken), being held down against the US$ in order to enhance Switzerland and Vietnam competitiveness against the US economy. Both countries have denied this. Looking at the currency-related pressures faced by each country: Switzerland has been among the countries hit hard by the pandemic, and, with interest rates solidly negative (its 10 year bond yield is around negative 0.5%, the lowest in the world), the last thing it needs is further appreciation of its currency, but which it is getting anyway, with the Swiss franc up against the Euro in December 2020, in a month when the Euro was up by 2.5% against the US dollar. (A Swiss commentator noted that, if Switzerland is accused of holding its currency down, then it must be recognized that it is doing a very poor job of of it.) The Vietnam current account surplus (trade balance+services balance+capital flows), the focus of the US complaint, is, say Vietnam officials, a product of many factors, including an economy which has moved to greater openness and market orientation, a path on which it has been on for thirty years, and which has greatly improved its trade balance. Vietnam officials have also pointed to the increases in remittances of Vietnamese living abroad back to Vietnam as a major support for the value of the dong (also true for many other emerging economies). Also holding down the dong, say Vietnam officials, is that inflation in Vietnam is relatively stronger than in the United States. A final observation: Switzerland is among the developed countries of the world that do intervene from time to time in currency markets. (WCO takes it for granted that emerging economies with hard currency shortages have no choice but to be actively involved in their foreign exchange markets), and that not every country is on the list of currency intervenors – WCO will be talking about that list in the weeks to come.)

January 20, 2021 update

Some of the expected post-Brexit realignment in securities and derivatives trading has begun, with reports of substantial movement of trading in Euro securities (generally Euro-denominated) and Euro swaps moved from London to Frankfurt, Paris Amsterdam and other European financial hubs in the first days of 2021 (the figure often quoted is 6.5 billion Euros per day). Offsetting this are reports that trading in Swiss shares will return to London in February or March, after having been blocked since 2019 as a retaliatory measure by the European Union, which was part of an EU-Switzerland trade dispute (not relevant now that the U.K. has left the EU).

Sometimes it is difficult to figure out where the appropriate line exists between measures to protect the foreign exchange value of a local currency (avoid over-expanding the amount of local currency), and, at the same time, working to ensure that the local currency is used for local transactions instead of, say, the US dollar (which necessitates greater amounts of the local currency, thus pushing down the exchange rate). In this light, consider the case of Sierra Leone, which has been wrestling with this dilemma, and is far from being the only world currency in this position. Sierra Leone has taken a number of measures over the last few years to maintain control of the value and availability of its currency, and also to encourage the use of the leone for in-country transactions rather than foreign currencies (the leone is currently reported by the central bank to be at around 10600/US$). Among these were limits on the private holdings of foreign currency outside banks, which were imposed in August 2019. On December 23, 2020, it was announced that these anti-dollarization restrictions have been lifted. Among the other restrictions still in place were those introduced in March 2020, which require all foreign-exchange-for-leone transactions to go through banks and licenced dealers, pushing dealers on the street out of business. (Sierra Leone is a member of the West African Monetary Union, which is attempting to move forward on a WAMU common currency, the Eco).

While there are some gaps in membership, and some countries have yet to ratify the agreement, and while it is true that intra-country trade among members is lower than, say, the European Union because of the emphasis on primary commodity exports (resources) and imports (food), it should be noted that provisions of the African Continental Free Trade Area went into force at the beginning of 2021…Saudi Arabia, Egypt, the United Arab Emirates and Bahrain have lifted their comprehensive sanctions (including total border closures) against Qatar… Looking ahead for the U.S. dollar against world currencies, the latest data suggest that the US trade and services deficit continued to grow in the last months of 2020, but it should also be noted that the US$ has generally strengthened against world currencies in the first two weeks of 2021.

And lastly, World Currency Observer wants to share an aphorism, coined (trademarked) by one of our staff: “The existence and use of cash money is as important to free commerce, as is the existence of a secret ballot important to a free democracy.” (We like it.)

(World Currency Observer will next be updated on February 3, 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.)