It’s understandable why many people find the whole business of currency exchange a bit dry, but it needn’t always be. Working in the currency business means we often come across facts that might appeal to the wider public. So, for this issue I’ve collected together a few snippets which I’m hoping you’ll find interesting. I wonder how many of them you know already…
There’s an unexpected benefit to making only bank-to-bank transfers, cutting out physically handling cash. A study in the US found that 94 percent of banknotes are contaminated with bacteria (mostly benign) and seven percent with dangerous pathogens, such as those that cause pneumonia. And further scientific research showed that 90 percent of American banknotes have been contaminated by cocaine. That’s something to think about the next time you receive your change.
In the eurozone, when the extent of the problems facing Spain’s banks was revealed last year, talk of the country having to re-adopt the peseta began to surface. But did you know that in the north-west of Spain some villages had already re-introduced their former currency? It started in 2011 when shopkeepers in Mugardos in Galicia allowed hard-up residents to pay for goods with any pesetas they had left over from before Spain joined the euro in 2002.
The Bank of Spain’s failure to set a time limit for exchanging pesetas into euros at its own branches in Madrid meant the shopkeepers just needed to travel to the Spanish capital to exchange the pesetas they accepted into euros. In 2012, another village in the region, Salvaterra, followed suit and the idea then spread to a village in the neighbouring Castile la Mancha region. The Bank of Spain estimated last year there are still €1.7bn worth of pesetas unaccounted for, but most of these probably left Spain years ago in the bottom of visiting holidaymakers’ suitcases…
Despite the trade in old pesetas, it is the UK, or London, that has the largest share of the global foreign exchange market, accounting for 37 percent of daily trading. The FX market operates 24/7. When it opens on a Monday morning in Hong Kong, it is still Sunday night in San Francisco; then throughout the day markets begin trading in Tokyo, Zurich, Frankfurt, Paris, London, New York, Chicago, and finally the west coast of the US. When the markets close in Los Angeles and San Francisco on Monday evening, Hong Kong is one hour away from beginning foreign exchange trading on Tuesday. The top ten traded currencies in terms of value and in descending order are: the US dollar, euro, yen, pound sterling, Aussie dollar, Swiss franc, Canadian dollar, Hong Kong dollar, Swedish krona and New Zealand dollar.
Tough times call for tough measures, which is why the US $1 bill could be heading the same way as the £1 note – the shredder. Towards the end of 2012, congressional auditors calculated that doing away with dollar bills and replacing them entirely with dollar coins could save taxpayers $4.4bn over the next 30 years. A $1 coin typically costs about 30 cents for the US Mint to produce – the government then sells them to Americans for a dollar each, a financial gain called ‘seigniorage’. These coins typically last around 30 years. In contrast, producing paper bills is cheaper – at about five cents apiece – but they also wear far more quickly.
In 2011 the Bank of England received 25,684 claims for the reimbursement of damaged banknotes, together worth £15.21m. Breaking this down, 13,873 of the claims were for torn notes, 5,478 for chewed or (partly) eaten notes, 2,099 for washed notes, 2,998 for contaminated notes and 1,236 for notes damaged in a fire or flood. This was a significant fall on 2010, when 30,093 claims were made, worth £18.78m.
What’s in a name?
There’s a story behind every currency’s nickname. The US dollar is often the ‘Greenback’, a term introduced during the Civil War when banknotes were first printed with a special green ink that was harder to forge than black ink. The Canadian dollar is often called the ‘Loonie’ after the loon – a bird pictured on its $1 coin. And the term ‘Quid’, for the pound sterling, has been around since the 1600s, possibly derived from either the Latin ‘quid pro quo’, which roughly translates into ‘this for that’, or its origins may lie with the former Royal Mint papermill in Quidhampton. In the world of FX trading, currency pairs have nicknames too – the £/$ is known as the ‘Cable’ after the trans-Atlantic telegraph cable that was used to transmit the value of the exchange rate between Britain and the US.
It wasn’t so long ago that the world’s largest single currency bloc was ‘Quid’ based. Rewind to the first half of the 1900s, and Britain and most of its colonies used sterling as their local currencies, and those that didn’t had a currency pegged to it. These countries formed the ‘sterling bloc’, or ‘sterling area’, together with a few others that preferred to peg their currency to sterling following Britain’s departure from the gold standard in 1931. At the outbreak of the Second World War, the British Government introduced legislation that formalised sterling bloc countries into a single exchange control area. The bloc was phased out between 1972 and 1979.
Charles Purdy is MD at Smart Currency Exchange