Small Exchange: India is vacuuming cash, UK’s new £1 coins and Mexico hedges forex reserves

Peter Terlato 27 February 2017 NEWS

international currency money bank notes

The week's currency news rounded up.

Senior IMF official likens India's demonetisation strategy to a "vacuum cleaner"

Responding to a question during its annual country report on India, International Monetary Fund (IMF) Asia and Pacific assistant director Paul A. Cashin criticised the government's demonetisation scheme.

"It's sucking in cash, withdrawing it from the economy, and then the vacuum cleaner is going in reverse, slowly replacing cash... at a fairly modest pace," Cashin said.

"That's led to a lot of cash shortages that have adversely affected consumption."

The global cooperative said the government must intensify the supply of new bank notes and extend temporary exemptions, such as the use of old currency in rural and remote regions, where necessary.

The IMF expects India will continue to feel the effects of demonetisation through the first quarter of 2017.

New bimetallic coin to replace UK's "round pounds"

On 28 March 2017 the United Kingdom will begin circulating new 12-sided bimetallic £1 coins, replacing the current counterfeit-vulnerable currency, according to The Guardian.

The Royal Mint claims that around one in every 30 £1 coins in circulation are fraudulent.

Approximately 1.5 billion new coins will be produced but officials estimate it will take about a month for the new currency to infiltrate most banks and retail outlets.

Outgoing £1 coins will be withdrawn on 15 October but you'll still be able to exchange them at the bank.

Bank of Mexico prepared to offer up to $20 billion in forex hedges

After the Bank of Mexico announced plans to hedge as much as $20 billion (12%) in foreign exchange reserves to prop up currency swaps, the Peso rose 2.3% against the US Dollar, hitting a three month high.

Mexico's Foreign Exchange Commission said the bank's first auction on 6 March will be up to $1 billion.

Since Donald Trump's election, the existing free trade deal with Mexico has been under fire, causing the peso to dip to record lows against Dollar through the end of the year.

A recent report by Stratfor Global Intelligence claims Mexico's utilisation of foreign currency reserves is a "clear and significant reaction to the pressure from changing U.S. economic and social policies".

Each week Small Exchange sums up currency news from around the globe and looks at how it impacts exchange rates and options.

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