why exchange rate has increased

M

mondongo

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Jan 1, 2002
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The exchange rate has risen from about 30:1 to almost 35:1 over the last few months.

DR1 news reported (yesterday) the government's claim that it was due to "seasonal factors" and sundry excuses.

Since I did not believe this claim, I did a little research on http://www.bancentral.gov.do/estadisticas.asp?a=Sector_Monetario_y_Financiero .

The rise in the exchange rate appears (to me :) ) to be the direct result of the Central Bank increasing the DR$ money supply at the fastest pace since the end of Hippo's term.

Just in the last month, monies in circulation (M1 for the nerds out there), increased by almost 10%. M2 has increased by DR$23Billion over the last few months.

So there you have it, the real reason.

regards,
m.m.
 
Squat

Squat

Tropical geek in Las Terrenas
Jan 1, 2002
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-how about gvt helping the peso to fall from 30 to 35 so it suits tourism and free-zone businesses who were not competitive enough with a stronger peso ?

Prices are now slightly cheaper (hopefully... that remains to be seen...) when coming from abroad with US$ or €uros. Meaning resorts are back on track to compete with Jamaica, Cancun, Cuba and others... Meaning the salary of a worker in a free-zone is relatively cheaper is translated in € or US$...

Of course, I am sure you are right with the tools gvt used to get to that very goal of devaluating a bit the peso.
 
M

MerengueDutchie

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Oct 13, 2003
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Squat said:
-how about gvt helping the peso to fall from 30 to 35 so it suits tourism and free-zone businesses who were not competitive enough with a stronger peso ?

Prices are now slightly cheaper (hopefully... that remains to be seen...) when coming from abroad with US$ or ?uros. Meaning resorts are back on track to compete with Jamaica, Cancun, Cuba and others... Meaning the salary of a worker in a free-zone is relatively cheaper is translated in ? or US$...

Of course, I am sure you are right with the tools gvt used to get to that very goal of devaluating a bit the peso.
Click to expand...

There has always been a debate about the 'right' exchange rate for the country, but it really comes down to finding a mid-way between two factors:

A high exchange rate (i.e. peso at 40 or higher) is good for export and tourism, two main economic drivers for the DR, but bad for the pay-off of froeign debt and the payment of fuel. It is also bad for the internal buying power of the Dominican people because prices of imported goods go up.

A lower exchange rate (i.e. peso at 30 or lower) is good for the repayment of foreign debt and the payment of fuel, but bad for epxort and tourism. It is good for the internal buying power of the Dominican people because prices of imported goods go down.

In the long run it is my opinion that, with foreign debt being paid off or refinanced and with a good oil deal with Venezuela, the country will be better of with a high exchange rate, to drive economic growth, provided consumer goods are available at reasonable prices.

At the moment the govt needs to navigate between the two factors and will likely try to keep the exchange rate in the middle, while maintaining a long term trend towards a high exchange rate as this is good for economic development.
 
Squat

Squat

Tropical geek in Las Terrenas
Jan 1, 2002
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33.5 or 34 makes sense...
it should float around there, anywhere between 32 and 35...

Then, we might be all wrong... But it should follow the logic you just posted, which is exactly what I think as well...
 
M

mondongo

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Jan 1, 2002
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good analysis, MD. I found something else interesting. the absolute value of the M1 increase was almost exactly the same as the absolute value decrease in short term Central Bank obligations, which brought an equivalent drop in the total Central Bank debt....I still don't know if that has any significance....
 
A

aegap

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Mar 19, 2005
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Mondongo, I commend you for scrutunizing the offical version and for conducting your own independent research and analysis of the facts, unlike the Dominican press which prefers to simply regurgitate whatever the government says.

How well is your spanish?... I ask beacause I think that you should write op-ed pieces for Clave Digital, like this guy, the director of BetaMetrix.

If your go to the main op-ed page, you'll find occasonal pieces by economist Jaime Aristy Escuder and former head of the Central Bank, Bernardo Vega.
 
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R

rush

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Jan 22, 2005
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With the bulk of the governments high interest obligations now due the government has no choice then to tighten monetary flow and increase the exchange rate while lowering the interest rate it pays on short term money
 
M

mondongo

Bronze
Jan 1, 2002
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aegap, thanks for posting those links. I read a couple of the articles by the author you cite, Alejandro Fern?ndez W. He appears to be an accomplished banking professional.

He used to be the Superintendent of Banks in the DR (latest stint during 2004), so he's probably not likely to overly criticize the actions of the Government.

I shamefully admit, though, that I have neglected my written Spanish during my 2 decades here in the US...something I must remedy ASAP. :(
 
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