July 1, 2015 (See July 15 and July 28 updates below.) Next full update: August 5, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).
Both the Euro and the Japan yen are down more than 20% over the last year against the US$. Other currencies around the world with similar amounts of downward movement include the Mexico peso, most Eastern European currencies (although these have been up on the month, in the 1 to 3% range), most African currencies, the Australia and New Zealand dollars, and the Malaysia ringitt. Among the currencies showing a more moderate downward trend against the US$ since this time last year are the Taiwan dollar and Phillipines peso, the Canada dollar, the currencies in countries around India, and most countries around South America, one exception being the 40%+ downward movement in the Brazil real. The Russian rouble is down nearly 65% since this time last year against the US$. Showing almost no movement against the US$ since this time last year is the China yuan - it has been remarked that Chinese stock market indices, which had risen strongly over the last year (e.g. more than 50% since the beginning of 2015 to their recent peak), are in the midst of a sharp reversal which began last week.
With regard to developments in Greece, the June 30 impasse, we think, could have been resolved (an impasse based on refusal of Greece to agree to more budgetary stringency in return for the release of the latest tranche of loan funds from the European Union, and the decision of Greece to call a referendum on July 5). WCO has been focusing on the capital controls issues related to the bank run in Greece, as they might relate to alternative currency arrangements for Greece. The bank run in Greece (more precisely, the conversion of bank deposits in Greece into Euro cash, by businesses and those segments of the Greek population who still have substantial deposits, despite the performance of the Greek economy over the last few years) has been going on for some years. It accelerated sharply over the weekend, however, when the European Central Bank announced it was providing no more additional liquidity to the Greek banking system, and smaller depositors got involved. One of the roots of the bank run which is unique to Greece (e.g., not really a factor in the Cyprus crisis of 2013) is the concern that there would be a conversion of Greek Euro-denominated bank accounts to Greek drachmas or to a 2nd class Euro, at a lower exchange rate, resulting in an instant financial loss. (The approach in Cyprus was more brutal –a 47.5% annulment of bank deposits above 100,000 Euros). Greek depositors safeguarded themselves against this by converting as much as they could into Euro cash. The Bank of Greece does not have authority for the issue of unlimited amounts of Euro notes, but rather only for the amount assigned to Greece by the European Central Bank (the National Central Bank quota, part of which is the now-frozen Emergency Liquidity Assistance from the ECB). The Euro bank notes issued by Greece are identifiable as Greek, due to the Y-prefix to the serial number – every European country has its own prefix. But, in practice, Euro notes from all countries appear everywhere in the European Union, so cancellation or devaluation of just the Greece-issued Y Euro currency would have an impact far beyond Greece. This doesn’t make such an action impossible, but rather more unlikely (but we don’t know for sure yet what the EC will do.) But it does point out that Greek holders of Euro currency also had to move their Euros out of the country, before the imposition of restrictions on movement of Euros outside Greece (this was a feature of the capital controls in Cyprus). One result is a lack of cash in the country at the same time that cash outstanding is very high. One more observation: the Euro bank runs are qualitatively different than the national bank runs that used to exist in places like the United States, runs which were eliminated by the introduction of deposit insurance for accounts above a threshold amount (e.g., $100,000 per account). Yet another observation: capital flight from Greece to other parts of Europe is not the same as capital flight from the European Union, which would, if it had happened, have been a greater concern to the EU. .
July 15, 2015 update
Nigeria, which is Africa’s largest economy and which has been strongly impacted by the fall in world oil prices and by US import substitution of American shale oil for Nigerian oil (oil is more than 90% of the value of Nigerian exports), has seen the Nigeria naira (both the official rate and 25%-higher bureau de change rate) fall over 20% against the US$ in the last year. In a series of press releases which began on June 23 and continued over the following week, the Bank of Nigeria announced that, in addition to the devaluation, foreign currency would not be available for a list of major imports which could be produced in Nigeria. The June 23 announcement said that the restrictions would apply to Nigerian foreign exchange markets (which might have implied a two-tier exchange rate structure for these imports), but a subsequent June 30 announcement was more specific about the restrictions, that they would apply to foreign exchange from the interbank market, foreign exchange from export proceeds, and from the bureaux de change (the central bank foreign exchange window had been closed earlier, in February 2015). Nigeria is saying that it has wanted to pursue a policy of substituting products which can be produced in Nigeria for imported products (one big example: rice), and that this is a good time to implement this policy, as it fits in with the need to reduce imports because of the downward pressure on the naira (the current value of the official naira is 196.95/US$, and the bureau de change rate is 239). There have also been restrictions on the use of credit cards for foreign currency-denominated purchases, and moves to ensure that transactions in Nigeria are denominated in naira, not in foreign currencies.
July 28, 2015 update
United States crude oil prices have plunged by 20% over the last month, and US production continues to be strong. These have separately contributed to the range of downward pressures on the currencies of the North American neighbours of the United States, the Canada dollar and the Mexico peso, both of which are influenced by their oil exports (prices and export volumes) to the United States, and which have fallen by more than 20% over the last year, after roughly 5% declines since last month.
(World Currency Observer will next be updated on August 5, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)