Currency Acrobatics

Bringing greater flexibility to our handling of currencies and the countries in which they circulate, has been one of those projects that turned out to be a fascinating lesson in global geopolitics as much as a technical challenge.

On a daily transactional basis – Prosaic!

But when taking into account the historic basis of a currency for book costs – Entertaining!

The relationship between countries and currencies is not straight forward.  Even on our doorstep in Europe there are 19 countries who share a single currency, the Euro.  Introduced in 1999 it circulated as fungible (mutually interchangeable) with the other sovereign currencies during a transitional period until physical bank notes were printed in 2002.  Just prior to this, the former USSR countries fragmented away and created currencies as they went, many then went on to adopt the Euro (one as recently as 2014) and some may still do so.  This is all recent history.

Africa, fast becoming the focus of emerging market investment, has some very interesting currency contortions many of which are a throwback to colonial days.  If my somewhat unusual investment strategy had been to invest into West African Burkina Faso… It’s official currency, shared with seven other previously colonial West African countries, is a stable currency called the West African CFA franc.  This is guaranteed by the French treasury (even though within this group are some former Portuguese and Spanish colonies) and is fixed to the Euro.  Prior to 1999 it was fixed to the French franc at 1 to 0.01; prior to that at 1 to 1.02; prior to that at 1 to 2.00; prior to that at 1 to 1.7….  Stability of a sort – mainly French franc instability.

When it comes to African currency stability Zimbabwe takes the ‘Lobels’ (a local biscuit).  What would my 1 million Zimbabwean dollar investment in Lobels Biscuits Company made in 2006 be worth today?  The answer is somewhere in the region of Z$100,000,000,000,000,000,000,000,000,000,000 (without redenomination) – What an enormous capital gain!

To get around inflation the alternative legal circulating currency in Zimbabwe is the USD, and EUR, and GBP, and ZAR, and …. 9 alternative legal circulating currencies – and biscuits!

But when is a currency not a currency?  When it is a fund!

In Chile and some other South and Central American countries a unit of account is created (Unidad de Fomento in Chile) that is constantly adjusted for inflation.  Initially created for international secured development loans, it’s now regularly used in private and commercial financing deals and has its own ISO currency code.  Switzerland also has one.  What are they trying to tell us?!

Our currency project took 18 months of research and development due to the complicated, convoluted and counter intuitive subject that is difficult to rationalise into a simple solution – but boy was it fun!

Check out some of the online currency Wiki’s to get a sense of the challenge.