Moneycorp's Reflection of Currency in 2009

A copper shortage in 1943 prompted the US Mint to consider making penny coins out of Bakelite. Ceylon had already gone down that route when it ordered prototypes of a Runcolite one-cent coin a year earlier. Neither went beyond the exploratory stage, but the die – if you will excuse the pun – was cast.

Although it took another forty years for plastics to make it into circulation, today at least half a dozen countries have issued polymer banknotes. Cost Rica led the way in the early eighties, with limited success and most other issues were commemorative; but Australia has been the real trailblazer. For more than ten years all of its banknotes have been polymer-based.

It is therefore quite appropriate that the Australian dollar led the world's currencies in 2009. It strengthened by more than 50% against the US dollar, 40% against the yen and 25% against the British pound between January and December. The overriding reason for the Aussie dollar's success was Australia's ability to dodge the recession that hampered every other developed economy. So resilient was Australia's economic position that the Reserve Bank of Australia felt the need to raise its policy interest rate three times at the end of the year – from 3% to 3.75%. Further increases are likely.

It was a good year all round for the currencies of commodity producers and developing economies. The Chinese yuan went nowhere, because its exchange rate is managed to within an inch of its life by the People's Bank. America and many other western governments, argue that China is cheating, keeping its currency at an unreasonably low level. Brazil, on the other hand, would dearly love to have a weak currency. It was in just such a position a year ago when President Lula had to make expensive provisions to rescue it. Since then, the real has climbed by 40% against the US dollar. The New Zealand and Canadian dollars have not kept up with the pace-setters. New Zealand's economy is struggling along with the others and Canada's close links with the United States hold it back.

The yen blew hot and cold. In the early part of the year it was popular as a safe-haven, when investors were still nervous about the financial system and the economy as a whole. Thereafter it gradually lost support, except against the US dollar. You have to be really scared before you buy into a currency with -2.5% deflation and an interest rate of next-to-nothing. Rising equity markets and growing (but perhaps misplaced) confidence, meant that investors were better off buying shares and recovery-related currencies than monetary sandbags and tin hats.

The US dollar was the year's highest-profile casualty. The aura of the new president lasted for a couple of months. After that it was downhill all the way. A couple of trillion on this rescue, a few hundred billion on that bailout and, as Senator Dirkson memorably said, pretty soon you're talking serious money. Investors are nervous about who will pay the bills. They have similar misgivings about the once-proud pound. At the end of 2008 all the talk was of parity with the euro and what might come next. That fate was narrowly avoided and sterling managed a recovery of 15% or so – but in the second half of the year the pound was back on the defensive. It shared the misery of the US dollar for the same reason:  government debt. Oh, and the longest-lasting recession of any developed country.

Britain celebrated 18 months of recession in September. It was not much of a party.  The Bank of England was still pumping cash into the system, hoping some of it would find its way into retailers' tills. The gap between tax receipts and public spending was still making monthly records. Asda was talking of ready meals in “terminal decline”. British consumers were turning into British savers, paying down the mortgage instead of paying up for goodies. In December, Morgan Stanley published a research paper speculating that a hung parliament next spring could put a stop on the economy and the currency.

So what does the New Year hold? Will the light at the end of the tunnel be attached to the front of an oncoming train? From a currency point of view the only guarantee is that there will be more uncertainty. Plastic pennies? No. Moving exchange rates?  Why, yes, of course. Hedge the exposure or take the risk – the choice is yours.