Changes in Financial Laws

From what I have read in the press, the bill would give the Central Bank (or the Monetary Board, I'm not sure which) the right to set fixed exchange rates for up to a year, in case of extraordinary circumstances.

Art. 28 of the Monetary and Financial Code presently states that our monetary system is based on the free convertibility of the peso with other currencies and expressly prohibits the Central Bank from establishing conditions affecting the free determination of exchange rates.

"Art?culo 28.- Libre Convertibilidad.- El r?gimen cambiario est? basado en la libre convertibilidad de la moneda nacional con otras divisas. Los agentes econ?micos podr?n realizar transacciones en divisas en las condiciones que libremente pacten de acuerdo con las normas generales sobre contratos. El Banco Central no podr?, en caso alguno, establecer que determinadas operaciones de cambio internacionales deban realizarse exclusivamente con ?ste o en condiciones que no aseguren libre determinaci?n de precios en el mercado...."

A New Name for the Law

Fabio J. Guzman said:

From what I have read in the press, the bill would give the Central Bank (or the Monetary Board, I'm not sure which) the right to set fixed exchange rates for up to a year, in case of extraordinary circumstances.

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Should the law be titled the "creation of a black market for US dollars act"?

The minute they set a fixed exchange rate that's what will happen. Nobody will accept, say $25 pesos per $1US if the true value is $35 pesos. There will be no US$ supplied unless through black market trading.

The rationale behind this seems to be "we did it in the 80s and it failed miserably so we are going to try again".

ricktoronto

Those with dollar bank accounts might supply them.

Any idea what would be deemed "extraordinary circumstances", and would there be any warning? - D

Danny W said:

Any idea what would be deemed "extraordinary circumstances", and would there be any warning? - D

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Answers:
1. Anything they want to deem it to be;
2. Warning? Are you kidding? This is the DR we're talking about here!

I know it's the DR, but are you saying that on Monday it could be 25 to 1? - D

Danny, as I understand it, the bill has been approved by the Senate, but not yet by the Chamber of Deputies. So, no, not this Monday. I thought you meant that, once the law was passed by Congress and signed by Hippo, would the Central Bank give advanced warning before applying exchange rate controls. It's very doubtful the BC would do so. While this is not exclusively a DR tactic -- many countries have sprung FX controls without warning (to prevent a run on currency), I think it is even more likely to be done in the DR as long as Hippo is in charge.

Regards,
Keith

In my totally unsophisticated opinion, the weak peso is great for the country. Tourism and exports are up, and the country is agriculturally self sufficient. If the new controlls are used in a rational manner (meaning only in the most extreme conditions), it seems to be reasonable. From my own limited viewpoint, I am helping to support a small family in SD. Their rent is fixed, and so they are rooting for a good tasa. Again, my viewpoint is extremely myopic. - D

sure might be 25 to 1 for about a month

Then the entire country would collapse. This is just another desperate attempt to get the bald jackass re-elected and scare the bankers a bit into conforming to PPH wishes.

As for the true value of the peso, 35 to 1 isn't even close to some of the numbers I've seen mentioned by banks in the US and Europe for new business ventures. Even the world bank publicly mentioned a number far in excess of 35 to 1.