June 2, 2021 (see June 16 update below.) Next update: July 2, 2021. Visit Search to look at past issues of World Currency Observer (brochure edition).

North America currencies were up by around 2% in May 2021 against the US$. Since before the pandemic (end of December 2019), the Canadian dollar is up by 7%, and the Mexico peso down by 5.5% against the US$. After a 3% rise against the US$ in May 2021, the Jamaica dollar is down by 12.5% from before the pandemic. The Haiti gourde fell by 6.5% against the US$ in May. The Brazil peso rose by 6% in May (down 30% against the US$ since before the pandemic.) The Suriname guilder fell by 25% against the US$ in May 2021. The Euro rose by 1.5% in May against the US$, and is now up by 8% since before the pandemic. The United Kingdom pound was up by nearly 2.5% against the US$ in May 2021 (up 6.5% since before the pandemic). The Poland zloty rose by 2.5% against the US$ in May, and is up by 3.5% against the US$ since before the pandemic. The Turkey lira fell by nearly 3% against the US$ in May, and is down by 42% against the US$ since before the pandemic. But in general, the currencies of central and east Europe countries are up, in the 8 to 10% range, against the US$ since before the pandemic. Currencies of former USSR countries strengthened against the US$ in May; the Ukraine hryvnia was up by 1.5%. The Russia rouble is down by 18% against the US$ since before the pandemic. Currencies of former USSR countries are down by 10-20% against the US$ since before the pandemic. The Iran riyal was up by 3.5% against the US$ in May 2021. The Ethiopia birr fell by 3% against the US$ in May (36.5% lower than before the pandemic), and the Sudan pound was down by 10% (45% lower than before the pandemic). The South Africa pound is 1.5% higher against the US$ than before the pandemic, after a 5% gain in May 2021. The Seychelles Islands rupee fell by 12% in May, and is now 25% lower against the US$ than before the pandemic. The China yuan rose by 1.5% against the US$ in May, and is up by 8.5% since before the pandemic. The Taiwan dollar fell by 2% in May against the US$. The Thailand baht is down by nearly 6% against the US$ since before the pandemic, and the India rupee is up by 1.5% since then. US$ prices of metals and temperate climate crops (such as maize, wheat and soybeans) have gone up by extremely large amouns since before the pandemic. A strong rise in the Baltic exchange index (shipping charges) has been interpreted as part of a wide range of shortages, such as labor and raw materials, due to the pace of economic recovery from the pandemic.

The World Bank compiles data on estimates of remittances (with separate data for remittance inflows and outflows for each country), and the data set issued in mid-May 2021 suggests that around ¼ of the countries in the world saw increases in inbound remittances in 2020 over 2019 (before the pandemic). Among the countries reporting increases in measurement of inbound remittances is Pakistan, which has also released data (central bank) indicating that, not only are 2020 remittances higher than 2019, but also remittances in the first few months of 2021 are higher than for 2020. Among the special factors affecting remittances around the world during the Covid-19 pandemic have been border closures, with residents in foreign countries substituting remittances for visits home, and also having to place greater reliance on official methods of transmission, such as banks, which can be more accessible to measurement (but also less available or very costly in certain parts of the world). Despite the fact that it is generally agreed that remittance flows are undercounted for many parts of the world (such as sub saharan Africa), the available data over the last 20 years suggest that remittances are, in most years, of greater overall volume than official development assistance inflows(from government and government-backed organizations, aid which is targeted towards very specific needs and purposes), and show less year-to-year variation than private capital flows. One other remittances development: the outgoing U.S. president (Trump) cut off U.S. remittances to Cuba, one of the last actions before leaving office in January 2021.

Mainstream media reports lead to the view that privately-issued cryptocurrencies (such as bitcoins) are the biggest area of currency news, with the focus on their large day-by-day rises and falls in prices. WCO follows these ups-and-downs as they are certainly significant (we also follow commodity prices), but has also said that it does not consider these privately-issued cryptocurrencies to be real currencies in our sense of the word, for reasons which include that, for us, a currency is money issued by/authorised by or linked to a state which claims sovereignty over a defined piece of territory and, within that territory, the currency must be legal tender, required to be accepted for payments (the link by what we consider to be real currencies to the “portfolio” of people, businesses and natural resources which constitute a country is one reason why real currencies show far less volatility in exchange rates than cryptocurrencies). Even the Stablecoin issued by Tether, which Tether says is backed 100% by highly liquid assets, kind of an investment portfolio which is like an ETF or mutual fund, does not fit our definition of a currency, although it somewhat resembles currency boards for exchange rates linked to the US dollar . But, crypto-currencies have important currency-like features, such as being accepted for payments by many persons and businesses - they are an alternative for deposits at banks and other financial institutions, which many find useful for cross-border transactions. There are increasing indications that one segment of cryptocurrencies will become what we consider a real currency, which will happen when (and if) digital currencies are issued by central banks, of which there has been a great deal of discussion, which includes a paper issued in autumn 2020 by the Bank for International Settlements. What may happen is that central banks will adopt the technology of cryptocurrencies, such as the electronic ledgers which record every transaction by a unit of cryptocurrency, and issue digital currencies, which will be an alternative to cash (held by everyone) and central bank deposits (held by banks as liquid reserves, and used for clearing cheques with other financial institutions). Given the technology of modern banks and cell phone mobile money, it looks like central bank digital money would compete directly with deposits held at banks and financial institutions, (which are already very electronic, with chains of transactions well recorded). As such, digital currencies issued by central banks would become what WCO would consider a real currency. Among the questions: what will happen to private cryptocurrencies such as bitcoins when central banks start to participate, which is based on the even more fundamental question of what are the real reasons for the growth of cryptocurrences, despite all of the price volatility and default risk (anonymity of transactions? a means of settlements among groups of firms bound in some way, such as a cartel arrangement?).

June 16, 2021 update

As noted in WCO (brochure edition) last month, a lot of attention is being paid to US inflation, with the vlew that, if the recently high levels of US price changes persist (compared to other countries), then the US dollar will continue to fall. The just-released (on June 10) May 2021 consumer price numbers for the US suggest that the month-to-month percent change in May 2021 was 0.8%, the same as the April level (by contrast, the EU says that May month-to-month inflation in the European Union in May was 0.3%, and was roughly the same level among the larger EU countries). The June 2021 numbers for the United States, to be released on July 13, will be seen as very important, as they will indicate if a definitive trend has been established. US consumer prices have risen by nearly 5% in the 17 months from their level before the pandemic (December 2019). (As of Tuesday morning June 15, it is still too soon to draw a definitive conclusion on the reaction of the US dollar to the June 10 release).

The release of a report for the U.S. president on the resilience of United States supply chains (June 8) has insights for foreign exchange rates analysts, with its in-depth analysis of examples of international linkages among countries due to the complexity of modern products - the four emphasized in the report are semi-conductors (computers and phones, whose inputs along the supply chain include hundreds of chemical and gas compounds), large capacity batteries (the future basis of electric cars, to possibly replace gasoline cars over the next thirty years), critical minerals and materials (where very efficient recycling can pretty well eliminate dependence on countries which originate the mineral), and pharmaceuticals.. One country runs like a thread through the entire report: China, as a competitor to the United States, both in production and consumption. The keyword of the report is resilience, which is important for national security (defense industry’s reliance on limited domestic suppliers; global supply chains vulnerable to disruption; and dependence on competitor country suppliers) , economic security (essential civilian industries would bear the preponderance of harm from a disruption of strategic and critical materials supply, with the example given being China production of lithium and cobalt, essential for US domestic auto production) and innovation capacity (it is noted that when manufacturing heads offshore, innovation follows.) A resilient supply chain is defined by the report as one that recovers quickly from an unexpected event. It is suggested, for the United States, “private sector and public policy approach to domestic production, which for years, prioritized efficiency and low costs over security, sustainability and resilience, has resulted in [increased] supply chain risks …To ensure resilient supply chains, it is essential that they be globalized. However, the search for low-cost production, combined with the effective industrial policy of key nations, has led to geographic concentrations of key supply chains in a few nations, increasing vulnerabilities for United States and global producers.”

The El Salvador Asamblea Legislativa has passed a bill on bitcoin use in El Salvador (Ley Bitcoin), which has drawn worldwide attention, due to the content of Article 7, which says that bitcoin will become legal tender in El Salvador (alongside the currency of El Salvador, the US dollar). Article 7 says that “Todo agente económico deberá aceptar bitcoin como forma depago cuando así le sea ofrecido por quien adquiere un bien o servicio.”- a rough translation is that everyone must accept bitcoin if it is offered as payment for goods and services, which would make bitcoin legal tender in El Salvador (probably the first country in the world with such a compulsion). But, then there is Article 12, the first sentence of which says (rough translation) that those excluded from the Article 7 compulsion to accept bitcoin as legal tender are those without the technology to accept it. (“Quedan excluidos de la obligación expresada en el artículo 7 de la presente ley, quienes por hecho notorio (common knowledge) y de manera evidente (clearly) no tengan acceso a las tecnologías que permitan ejecutar transacciones en bitcoin.”) The law goes on to say that the government is going to undertake supporting measures, such as the diffusion of technological support to allow more businesses and others to accept bitcoin, and the establishment of a fund to convert bitcoins to US dollars. The El Salvador government has been quoted as saying that it hopes one result of the bitcoin measure is to lower the costs of remittances to El Salvador from its citizens abroad.

(World Currency Observer will next be updated on July 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.)