Sayanora:
Thanks for the chart.
From time to time a thread or two is opened on investing in DOP's. Invariably, people see or read about the higher yields and are immediately drawn to them like moths to a light.
And in certain circumstances, that vary from person to person, an investment in pesos may be worthwhile. However keeping dollars or euros and earning a small rate of return and accessing that money through an ATM, wire transfer, or otherwise is still not all that bad a strategy....and here is why.
First, your money in a US account (assuming you keep it in the US) is FDIC insured. Not so in the DR...there is no deposit insurance. If a bank collapses, you are not guaranteed return of your funds.
Second, the peso has been depreciating per the chart at various rates between 3-4% per year since the banking crisis. So just by keeping your account in dollars you are earning interest in your US account (however small) and another 3-4% per year vis a vis the exchange rate moving favorably toward those dollars.....and that is with no/little risk.
Keeping pesos in an account in DR "might' yield 10%, depending upon the amount invested and the length of time....but your money is at risk in lots of ways.
First, no FDIC insurance. Ask those people with accounts at Baninter Bank or one of the others that closed in 2003-2004 about that.
Second, During that period and during other periods, dollars were scarce in the DR. Trying to withdraw dollars became a very scary proposition. Some banks limited the amount you were allowed to withdraw each day, while others simply had no dollars available.
Third, assuming you can find dollars, there is a conversion fee. All the banks quote what they will pay/exchange dollars for, but they also list the amount of pesos needed to buy dollars. That differential, the spread, must be taken into account in any decision to invest in peso certificates.
Additionally, you have a new tax on interest that must be calculated....and will affect your returns.
Also, some wildcards that have not come to pass in the DR, but have happened elsewhere in Latin America need to be considered. Mexico on multiple occasions has devalued its curency overnight. By way of example, people went to bed with old pesos and woke up to a new peso whose exhange rate had been devalued along with their purchasing power.
Finally, countries have imposed limits on the amount of hard currency that may be sent out of the country, forcing people to keep their money tied up in the banks....all the while the currency depreciates.
As one makes an anaylsis about investing in a currency, bear in mind all those factors above, then make your own decision based on your needs, risk tolerance, etc.
One last point. there has only been one time in the last ten years when investing in pesos would have made you the kind of money commensurate with the risks associated with a third world country. That point is when the peso broke 50 in 2004.
By buying at 50 and hanging on for the wild ride that was to come, some investors did well for the risk, as the peso with large dollar infusions from the IMF to prevent a total collapse of the banking system strengthened to 28:1. That would have been the time to buy back dollars and make money.
Again, everyones risk tolerance will be different and every one should assess their own individual appetite for those risks....and make no mistake about it those risks are real.
Respectfully,
Playacaribe2
