Please note: this is a beta-version of the Retrospective Currency Converter; this tool is currently being tested in several countries. We invite you to use the tool and send us your feedback. Contact us in case you have any questions or suggestions via firstname.lastname@example.org. This tool has been developed by IRC and Aguaconsult.
Understanding the costs of supplying sustainable water, sanitation, or hygiene (WASH) services is an important first step to be able to finance and plan for these services. Methodologies, such as Life Cycle Cost Analysis, have been developed to analyse and predict these costs. These methodologies often involve reviewing historical records of expenditures in an effort to derive estimates that can be used for financial planning purposes.
The reliability of these estimates is related to the number of data points that are analysed to derive the estimates. For example, in order to understand the operating costs of pump, it is better to review a database of annual expenditures that covers 5-10 years versus reviewing only the past year. Having multiple years of data will provide more reliable estimates and account for any outliers that might lead to over or underestimates of the costs.
However, when doing the analysis to derive the cost estimates, it is important to compare like with like. Therefore historical expenditures need to be adjusted, brought to a common year and currency to be compared.
We understand that a dollar (or euro, pound, etc.) today is worth more than dollar in ten years’ time. Similarly, the present value of a dollar that will be spent ten years from now is less than the value of today’s dollar. Projecting future expenditures is done using the present inflation rate. Similarly to understand what the present value is of previous expenditures it is necessary to “deflate” the value of those past expenditures using a historical record of inflation rates.
The Retrospective Currency Converter can be used in three different ways:
1) Past Year to Present Year for one currency- This tool allows you to deflate past expenditures to understand present value or the value at a given year after the expenditure was made. For example, if you have expenditures in USD from 1966 you could determine the value in 2015 USD (or 1967).
2) Past Year to Present Year and converting currencies- The tool has the ability to deflate past expenditures in one currency, and the convert the currency in the desired year. For example you could calculate an expenditure from 1966 made in Rwandan Francs to USD in 2015 (or any other year between 1966 and 2015).
3) Convert currencies-It also allows you to convert between any global currency to any other global currency. If you have an expenditure in Rwandan Francs in 2015 you could convert to USD in 2015.
There are multiple ways to deflate past expenditures. The most common is done using the macro economic data such as the purchasing power parity (PPP) or the Gross Domestic Product (GDP) of a country. There are advantages and disadvantages of using both, however the Retroactive Currency Converter uses the GDP deflator for the present value calculations.
Similarly, currency conversion can be done using various rates. Conversion rates vary in real time, therefore it is necessary to utilise average figures.
The World Bank maintains an updated database of financial information including a GDP deflator and the official exchange rates of all global currencies. The definitions of each indicator are as follows:
GDP deflator (annual %) - Inflation as measured by the annual growth rate of the GDP implicit deflator shows the rate of price change in the economy as a whole. The GDP implicit deflator is the ratio of GDP in current local currency to GDP in constant local currency.
Official exchange rate (LCU per US$, period average)-Official exchange rate refers to the exchange rate determined by national authorities or to the rate determined in the legally sanctioned exchange market. It is calculated as an annual average based on monthly averages (local currency units relative to the U.S. dollar).
These data are found at http://data.worldbank.org/indicator. If you are connected to the internet, from the home screen of the tool you can update the dataset. The home screen lists the date that the data used in the tool was last updated. World Bank updates the data on an annual basis.