Microeconomic Indicator in FOREX:
Corruption Perceptions Index
What is Corruption Perceptions Index?
The Corruption Index is an index that ranks countries by their perceived level of corruption in the public sector. The data is generated by surveying the market experts and businesspeople residing in the country. This index is generated for 180 countries all over the world, and they are ranked on a scale from zero to 100, where zero represents extreme high corruption, and 100 represent extreme low corruption. Generally, indices between 0 – 50 are perceived as more corrupt, and indices between 50 – 100 are regarded as less corrupt. The average score of Corruption Index in the latest report for the year 2018 is just 43, which explains the rate of corruption in the world. Close to 70% of the 180 countries have Corruption Indices scores below 50, which is very unfortunate. In the 2018 Corruption Index report, Denmark and New Zealand stand on top as the least corrupted countries with CPIs 88 & 87 respectively, while Somalia and South Sudan are perceived as the most corrupted countries with indices 180 & 178 respectively. You can familiarize yourself with the Corruption Index numbers of each of the 180 countries for the year 2018, by following the below link.
Corruption Perceptions Index 2018 - https://www.transparency.org/cpi2018
What does the Corruption Perceptions Index measure?
The Corruption Perception Index measures the level of corruption that is prevailing in the country. This report is being published from the year 1995 by an organisation known as Transparency International. This group collaborates with 12 different major institutions around the world and conducts 16 surveys to gather the public and expert opinion in order to generate data for this report. This index also measures the perception of corruption based on the difficulty of measuring absolute levels of corruption in a country.
Reliable sources of information on ‘Corruption Perceptions Index’ for Major currencies:
We have compiled a list of sources for you to understand more about the Corruption Perceptions Index for some of the major economies. By following the links provided below, you can acquire more knowledge on the Corruption Indices of these countries and their respective trended data. Historical data related to these indices will give you an idea of how & if the country’s situation of corruption has improved or hindered. Along with that, a clean set of graphical representations are made for each of the country Corruption Index values for better visualisation. You also get to change these representations accordingly.
GBP (Sterling) - https://tradingeconomics.com/united-kingdom/corruption-index
AUD - https://tradingeconomics.com/australia/corruption-index
USD - https://tradingeconomics.com/united-states/corruption-index
CHF - https://tradingeconomics.com/switzerland/corruption-index
EUR - https://tradingeconomics.com/euro-area/corruption-index
CAD - https://tradingeconomics.com/canada/corruption-index
NZD - https://tradingeconomics.com/new-zealand/corruption-index
JPY - https://tradingeconomics.com/japan/corruption-index
What do traders care about the Corruption Perceptions Index and its impact on the currency?
Higher Corruption Index numbers of a country indicate widespread corruption that is prevailing in the country. This fact contributes to the currency crisis because higher Corruption Index numbers make a negative impression for the foreign investors to invest in these corrupted economies. So the countries will have to depend on the highly volatile loans in the absence of foreign direct investments. Investors also refuse to put their money in countries with higher corruption rates as there would be many problems the business would face, like the local bureaucrats expecting bribes and the national governments being helpless in these situations. So by completely being dependent on the loans provided by foreign banks, the economy is much more vulnerable to a currency crisis. Because even a small unfavourable change in the fundamentals of a foreign government which provided loans might cause a large swing in the portfolio’s capital flow, this will harm the health of the currency, and it eventually depreciates. So even if this index doesn’t move the markets swiftly, traders will have an overall look on the Corruption Index numbers before they trade currencies in large volumes.
Frequency of the release
Transparency International conducts an annual survey and collaborates the data collected from 12 different credible institutions in order to arrive at the final Corruption Index numbers for all the 180 countries. This report is released on a year-on-year basis. So since its inception, more than 20 Corruption Perceptions Index reports are published till date.
The Bottom Line
The overall trend in the Corruption Perceptions Report is disappointing for businesses around the world. Even though there are a few countries with better indices compared to previous years, the overall picture is still substandard. An average index of 43 supports this statement. 2018 Corruption Index numbers reveal that most of the countries continued to fail in significantly controlling the corruption and this is contributing to a crisis in democracy across the globe. Transparency International believes that corruption is damaging the democracy to produce a vicious cycle where corruption is weakening the democratic institutions, and these weak institutions are unable to control corruption. There should be precautionary steps taken by the governments in order to curb or at least control the corruption to maintain a healthy economy.