Good bye to the Peso? - What would be the consequences?

Tamborista

hasta la tambora
Apr 4, 2005
11,747
1,343
113
The CB will never "get rid" of The RD Peso, they might peg it to the USD @ say 40, and it would not fluctuate VS USD.

There is still going to be inflation, you can't make inflation go away by switching currency.
Crude oil is priced in USD, and most goods are based on the production/delivery cost of CL.
Local prices NEVER go down, you know this, they might stabilize a bit until Crude goes to $125.

PS: I am no economist, but I closely follow the price of CL, EURUSD and local goods.
 

j&t's future

Bronze
Mar 6, 2007
2,502
27
48
I seem to remember Picardo writing something regarding the "Dominican Dollar" & "E-Peso".... one which he said would be directly tied to the USD.
Will prices go up or down?
As Tambo said, prices NEVER go down.
 

Omar_NYC

New member
Mar 22, 2013
297
0
0
Sometime ago there was talk about the US Dollar going the way of the doodoo as well. It would seem this continues being the case. Bernanke has been purchasing $85 billion per month in treasury bonds, presumably to continue selling the debt to foreign countries interested in holding it. This so-called Quantitative Easing is meant to help prop up the US economy and restart consumer spending here.

I'm no economist by any stretch of the imagination, but if workers cannot find work, they cannot produce, and if there's no productivity there's no wages, and if there's no wages there's no consumer spending-driven economy from which much of the financial system here seems to rely.

This problem is obviously exacerbated in DR with many other fundamental issues at hand.

One could probably take China as a case study for what might help prop up the economy in the DR; make it foreign business friendly; make local wages ridiculously cheap (already in DR so; check), continue intentionally devaluing your local currency (already happening in DR so; check) and have a favorable free trade to encourage more importing/exporting (HA! That's where the DGII and customs will disagree no doubt).
 

Riva_31

Bronze
Apr 1, 2013
2,531
179
63
San Pedro de Macoris
We dont have to be so smart to know if dollar xchange goes up everything goes up and dificult to go back, so will be very good if we go str8 and use dollars instead pesos.
 

puryear270

Bronze
Aug 26, 2009
935
82
0
El Salvador switched to the US dollar several years ago, mostly because remittances were the only thing holding their economy together.

I understand that Panama is already on the US dollar.

I really don't see the DR giving up the peso and using the US dollar as its currency. First and foremost, pride is involved.

If the DR government really wanted things to get better, all they would have to do is list who is on government payrolls (and how much they make) and secondly, list who owes money on their electric bill. Publish that every month in Listin or Hoy, and within 2 years time, half the problems of the country would be cleared up.
 

the gorgon

Platinum
Sep 16, 2010
33,997
83
0
Sometime ago there was talk about the US Dollar going the way of the doodoo as well. It would seem this continues being the case. Bernanke has been purchasing $85 billion per month in treasury bonds, presumably to continue selling the debt to foreign countries interested in holding it. This so-called Quantitative Easing is meant to help prop up the US economy and restart consumer spending here.

I'm no economist by any stretch of the imagination, but if workers cannot find work, they cannot produce, and if there's no productivity there's no wages, and if there's no wages there's no consumer spending-driven economy from which much of the financial system here seems to rely.

This problem is obviously exacerbated in DR with many other fundamental issues at hand.

One could probably take China as a case study for what might help prop up the economy in the DR; make it foreign business friendly; make local wages ridiculously cheap (already in DR so; check), continue intentionally devaluing your local currency (already happening in DR so; check) and have a favorable free trade to encourage more importing/exporting (HA! That's where the DGII and customs will disagree no doubt).

unless a currency is already overvalued, how exactly does devaluation help a country that is dependent on imports for survival? just asking..
 
Sep 4, 2012
5,931
57
48
It triggers a demand for locally produced items, thus attracting outside markets (since they are cheap to make due to local labor), hence economic growth.

With devaluation, it takes less to produce something locally and sell it at international markets under foreign currencies.

And welcome back!
 
Last edited:

the gorgon

Platinum
Sep 16, 2010
33,997
83
0
It triggers a demand for locally produced items, thus attracting outside markets (since they are cheap to make due to local labor), hence economic growth.

With devaluation, it takes less to produce something locally and sell it at international markets under foreign currencies.

And welcome back!

firstly, thank you for your kind welcome.

now for the negative part. devaluation makes imports more expensive, so local products actually become more expensive to produce if they have a high import content.
 

Expat13

Silver
Jun 7, 2008
3,255
50
48
El Salvador switched to the US dollar several years ago, mostly because remittances were the only thing holding their economy together.

I understand that Panama is already on the US dollar.

I really don't see the DR giving up the peso and using the US dollar as its currency. First and foremost, pride is involved.

If the DR government really wanted things to get better, all they would have to do is list who is on government payrolls (and how much they make) and secondly, list who owes money on their electric bill. Publish that every month in Listin or Hoy, and within 2 years time, half the problems of the country would be cleared up.

You forgot one very important barrier- In the DR it is a crime to call "a thief, a thief".
 
Sep 4, 2012
5,931
57
48
firstly, thank you for your kind welcome.

now for the negative part. devaluation makes imports more expensive, so local products actually become more expensive to produce if they have a high import content.

The key is "locally produced." even if imports are needed in the process.

1. Any import price paid is offset by cheap labor. The more jobs, the better for the local economy.
2. Final product is now sold to international markets under a higher valued currency. The income derived from that helps GDP and the cycle repeats at a greater rate.

Think outsourcing overseas.
 

Omar_NYC

New member
Mar 22, 2013
297
0
0
firstly, thank you for your kind welcome.

now for the negative part. devaluation makes imports more expensive, so local products actually become more expensive to produce if they have a high import content.
Correct. But consider that China produces a considerable variety of goods that are exported; anything from electronics to toiletries; and there's no need for citizens of that country to consume products that contain many imported parts or quantity

It's probably too late for DR to jump on that gravy train, but if there's one commodity or product that DR can still massively produce and export aside from Brugal that would be precious metals. Get some mining companies together and produce iron ore, aluminum, etc instead of letting in a foreign national to do it for them for a slice of that pot and that could single-handedly start solving DR's economic problems.

The government can only keep taxing for so long before it becomes an unsustainable model, if it hasn't already become that way.
 

the gorgon

Platinum
Sep 16, 2010
33,997
83
0
Correct. But consider that China produces a considerable variety of goods that are exported; anything from electronics to toiletries; and there's no need for citizens of that country to consume products that contain many imported parts or quantity

It's probably too late for DR to jump on that gravy train, but if there's one commodity or product that DR can still massively produce and export aside from Brugal that would be precious metals. Get some mining companies together and produce iron ore, aluminum, etc instead of letting in a foreign national to do it for them for a slice of that pot and that could single-handedly start solving DR's economic problems.

The government can only keep taxing for so long before it becomes an unsustainable model, if it hasn't already become that way.

two problems with the devaluation thing....first, foreign inputs, like machinery, components, and proprietary intellectual property, plus energy..all become more expensive.

secondly, you only benefit from the exchange rate effect if there are elasticities in place. not because a product becomes relatively cheaper means there is a corresponding increase in demand. if the price of tetracycline goes down tomorrow, that does not mean people will be rushing to the pharmacy to buy cartons. along with that, elasticity of supply has to be in place. no point in having the increased demand if your productive capacity cannot keep pace.
 

Omar_NYC

New member
Mar 22, 2013
297
0
0
two problems with the devaluation thing....first, foreign inputs, like machinery, components, and proprietary intellectual property, plus energy..all become more expensive.

secondly, you only benefit from the exchange rate effect if there are elasticities in place. not because a product becomes relatively cheaper means there is a corresponding increase in demand. if the price of tetracycline goes down tomorrow, that does not mean people will be rushing to the pharmacy to buy cartons. along with that, elasticity of supply has to be in place. no point in having the increased demand if your productive capacity cannot keep pace.

Costs of getting an infrastructure in place can be rolled into a capital investment. Amortize the cost over a period of time. The government can also perhaps finance this the same way the US does; sell debt. Create a bond market, attract investors, and get the wheels spinning. The government guarantees interest payments only over a period of time, freeing itself to use the cash as needed to get that return on investment.

Supply and demand is never exact science, but the possibility of creating it alone is sufficient incentive to get a feel for what is needed to satisfy the demand.

The biggest problem with getting this sort of thing going is with keeping hands off the cookie jar. DR is probably in a big dilemma as it stands borrowing money it cannot repay and it cannot account for.
 

Hernandez

Banned
Feb 9, 2009
875
20
0
Good bye to the peso? No way! They can print as much pesos as they want, but they can't print dollars.
 

the gorgon

Platinum
Sep 16, 2010
33,997
83
0
Costs of getting an infrastructure in place can be rolled into a capital investment. Amortize the cost over a period of time. The government can also perhaps finance this the same way the US does; sell debt. Create a bond market, attract investors, and get the wheels spinning. The government guarantees interest payments only over a period of time, freeing itself to use the cash as needed to get that return on investment.

Supply and demand is never exact science, but the possibility of creating it alone is sufficient incentive to get a feel for what is needed to satisfy the demand.

The biggest problem with getting this sort of thing going is with keeping hands off the cookie jar. DR is probably in a big dilemma as it stands borrowing money it cannot repay and it cannot account for.

creating physical infrastructure is the easiest part of the production equation. it is the corresponding increase in human capital which presents the problem, unless you are producing primary products or extremely low tech manufactured goods.
 

puryear270

Bronze
Aug 26, 2009
935
82
0
two problems with the devaluation thing....first, foreign inputs, like machinery, components, and proprietary intellectual property, plus energy..all become more expensive.

So much of the electricity here is created by imported fossil fuels that it is going to be tough to overcome that trade deficit. Not to mention that many companies don't want to invest here because there is no reliable electricity. There is no reliable electricity because so many do not pay for what they receive.

That seems to be a key factor in the economy that has to be resolved, dollar, euro, or peso.

And welcome back from me, too. You always have such great insights. :rambo:
 

the gorgon

Platinum
Sep 16, 2010
33,997
83
0
So much of the electricity here is created by imported fossil fuels that it is going to be tough to overcome that trade deficit. Not to mention that many companies don't want to invest here because there is no reliable electricity. There is no reliable electricity because so many do not pay for what they receive.

That seems to be a key factor in the economy that has to be resolved, dollar, euro, or peso.

And welcome back from me, too. You always have such great insights. :rambo:

thank you very much for the kind words. the respect is mutual, i assure you.
 

windeguy

Platinum
Jul 10, 2004
42,087
5,914
113
One benefit to going to a dollar based economy I see is that it would eliminate the "ratchet" effect. I have no idea what economists call this between two currencies, but I see it this way. The peso loses value, local prices for consumers go up, the peso gains value, the prices remain where they are instead of falling. Then the peso loses value, the prices go up, the peso gains value and the prices remain the same. All the while the buying power of someone earning a fixed peso income decreases.

Of course under the current circumstances there is little short term hope that the peso will regain much value.
 
May 29, 2006
10,265
200
0
I went through a currency revamp in Estonia when they went from the Russian Ruble to the Estonian Kroon. They established a German bank account and then the Kroon was locked directly to the German Mark from it. They've done very well and it made it possible to do international trade.

The peso needs to stay a little weak or tourism will suffer. Under 30 to the US Dollar and the DR stops being such a good bargain. Over 40 and the cost of imports(esp gas and food) gets out of hand.