24-28% Savings Certificates newly offered by Central Bank

It sounds very interesting and has definitely caught my attention. Anyone familiar with this form of investment?

Tondra

If something seems to good to be true,it IS!

Those rates would about equal the "de-valuation" of the Dominican peso in the last 12 months! Still sound good? How about zero guarantee on your principle!Still sound good? How about can't get your money when you want it! Still sound good?There is no "FREE LUNCH",especially in the DR!! cris

Gotcha!

I figured as much, but you will never know unless you ask. Thanks for the frank reply, Cris.

Tondra

Caribee
What is the term of the certificate?
I believe 30, 60 & 90 day certificates are offered.

How often is interest payable to certificate holder?
Generally at the END of the term agreed - NOT during the term.

How safe would you consider this investment on a scale of 1-10?
About 7 However , the banks reserve the right to reduce the interest rate as the needs dictate after the first month!! It could go down to 16 % in two months time!! (see also below.

Can anyone recommend a bank representative who speaks English fluently and whose bank deals in these certificates?
Most banks of repute will handle these "Certificados" - Banco Popular, Banco del Reservas, Bano Mercantil, Skotia Bank. All have staff who speak English - the trick is FINDING that person on the day you go in!!!

Chris is right about the devaluation risk. The peso has devalued almost 30% in the last 12 months so SHORT term is the only way to go if you are investing in the local currency. Also, I would only recommend pesos if you LIVE down here & will be using them!! Chris is also correct about the lack of a guarantee or any form of collateral, the banks just don't issue them!!

I DO disagree with Chris about getting your money out - my experience has been that the banks are excellent at paying the capital AND interest accrued at the end of the term agreed. If you let the money remain in beyond the agreed Term, the banks will pay out at the end of the next 30 day period of the anniversary date! - Grahame.

I have been getting 24%+ on Pesos for over a year and losing my ass. Stick to the Dollar for a profit you won't have to wonder about.

Historically if you have been in Pesos for 10 years you would have done better with the same 100 dollars US worth of Pesos deposited in a RD Peso account rather than US dollar account but do you want to take the chance with the poor economy in the DR at this point or any other point knowing that you could actually lose money?

Originally I signed on to the thought that I would have "Enough Peso investments in the DR" to pay what I need to live on in the DR until I saw the big hit last year. Now I plan to have "Enough US dollars invested in the DR" to pay what it costs me to live on in the DR.

These are rough times in the DR with the Devaluating Peso and an economy that had been in a downward spiral and hard to figure out. Give it a lot of thought and ask a lot of questions before you do anything.

Escott

The Monetary Board announced that it has authorized the Central Bank to place savings certificates for up to RD$5 billion. Terms that will apply are: 30 days (24%), 60 days (25%), 90 days (26%), 180 days (27%), 360 days (28%). The certificates can be purchased at the headquarters of the Central Bank located at Av. Pedro Henriquez Ure?a in Santo Domingo and the Central Bank regional office located off Autopista Duarte in Santiago.

These certificates in theory ahve the same risk level that a US Treasury Bond has. These rates are usually deemed the "risk-free rate".

That beeing said there are some big questions regarding the legality of these certificates. If I'm not mistaken the Monetary Code of the Dominican Republic explicitly forbids the Central Bank form competing with local banks in the open market. The issue of these certificates clearly violates this law, so I'm not sure of what is going to happen.

The issuance (is this a word???) of these certificates will put a huge strain in the local banks and will have VERY negative consecuences since they will loose a lot of business and cash to the Central Bank. You'll soon see interest rates go thru the roof and it wouldn't surprise me if in the next couple of months we see interest rates of 30% or even higher in commercial banks.

jojocho said:

These certificates in theory ahve the same risk level that a US Treasury Bond has. These rates are usually deemed the "risk-free rate".

Click to expand...

jojocho, Maybe some day the DR Treasury Bills will have the same level of risk as in the USA, but that is far,far from being the case today. That being said, if you are going to deposit your money in a Domincan financial institution, then these notes are the SAFEST. The reason for this (I'm drawing some parallels between the US and the DR systems) is that your transaction is in DR$. The DR government can ALWAYS pay you back in DR$ because they own the money printing presses. This is not a comment on the sagacity of DR Treasury Bills or Notes. To make this judgement, you have to decide whether or not you will want to exchange the DR$ to US$. If you live in the DR, you also have to gauge your personal expected inflation rate during the time your money is tied up.

The Central Bank tried a similar-to-the-USA model last January of auctioning off DR$5 billion. The way it would work is that the interest rate for each maturity would be set by the supply demand of the open market auction. But since there was little demand at the auction, the Central Bank has decided to fix the rate. This is not necessarily illegal (in my un-informed opinion), as long as they adjust the rate based on the public demand. In the USA, the Central Bank DOES compete with regular banks. Banks stay in business because they are more convenient than opening an account with the Treasury department.