The following article is Copied from the Sosua News Nov 14, 2008.
Since Dominicans abroad are sending less money (dollars and euros) home to the families here, tourism is falling slightly, and exports (of bananas to Europe, for example) have dropped, there is less foreign currency in the country. The Dominican Republic imports almost everything, and needs to pay for these items in dollars or euros. As there is less foreign currency coming into the country, this pushes up the peso. In order to buy dollars for imports, companies are now paying more pesos for foreign currency. In order to prevent this, the national bank plans to keep the peso stable (at 35.5 per dollar) by injecting 50-100 million dollars into the market. However, if the crisis continues for a long period, the central bank will not have sufficient funds to continue this strategy. So, at some point, the peso will probably be devalued.
Tourists will temporarily find prices lower, as they get more pesos for their dollars or euros, but, the import situation will mean that prices will rise quickly, and tourists will not really benefit. However, for Dominicans (who are paid in pesos) this will be disastrous - they will see prices in the shops being doubled, but their salaries don't keep up with inflation.
Since Dominicans abroad are sending less money (dollars and euros) home to the families here, tourism is falling slightly, and exports (of bananas to Europe, for example) have dropped, there is less foreign currency in the country. The Dominican Republic imports almost everything, and needs to pay for these items in dollars or euros. As there is less foreign currency coming into the country, this pushes up the peso. In order to buy dollars for imports, companies are now paying more pesos for foreign currency. In order to prevent this, the national bank plans to keep the peso stable (at 35.5 per dollar) by injecting 50-100 million dollars into the market. However, if the crisis continues for a long period, the central bank will not have sufficient funds to continue this strategy. So, at some point, the peso will probably be devalued.
Tourists will temporarily find prices lower, as they get more pesos for their dollars or euros, but, the import situation will mean that prices will rise quickly, and tourists will not really benefit. However, for Dominicans (who are paid in pesos) this will be disastrous - they will see prices in the shops being doubled, but their salaries don't keep up with inflation.