Get Rich Quick Scheme
From my earlier post in another thread:
Given the expected influx of dollars into the country over the festive season, this should bring in a good supply of dollars, which need to be changed at the official rate. So even when there are no 'in country' sellers, dollars from tourists need to be changed this is were the supply of dollars will come from!
These dollars would normally end up in the hands of the cambio houses. Guess what, a comittee of Generals has met with Hippo and are now supervising the cambio houses to make sure that they will funnel the dollars into the Central Bank. He now has the strong arm to bully the unwilling 'in-country' sellers.
At the end of the festive season, the Central Bank will have a large amount of dollars, bought at an artificially deflated peso rate. These dollars can then be used to pay of foreign debt at a discount or to disappear into the pockets of the people who will distribute them.
During the festive season some of these dollars will also be distributed to 'selected individuals' who can get them for 30 peso to the dollar. Likely targets would be importing companies who are owned by supporters of Hippo. They will claim they need dollars to pay their bills outside the country. They will either pay their overseas bills at a discount or resell the dollars to the banks at a later date at a different rate of 40 peso to the dollar.
Can anybody say re-election please?
To avoid dollarization of the economy, which would prohibit the future use of this instrument, the fixed peso to dollar ratio will be abandoned in a few months time. At that time the dollar will go up again against the peso.
Who will suffer and gain from this scheme?
Losers
1) The cambio houses will loose profit by having to exchange any dollars they currently own (and bought at a real rate) to the Central Bank at a lower rate.
2) The tourists will suffer heavily and may decide to cut down spending. The question is by how much? If they cut spending by the relative amount that the real rate is cut then a zero net effect on the entire DR economy occurs. If they cut their spending by less a net positive effect on the DR economy occurs.
Winners
1) The Central Bank(government; Hippo) they obtain a large supply of dollars against a delfated rate.
2) Selected individuals who will in turn support Hippo in the next election.
3) If part of the additional profit on imports is factored in consumer prices some of this scheme could trickle down to the general populace.
4) If the tourists will not cut their spending by the same relative amount as the real rate will be cut then a net positive effect on the entire economy will occur. The profit from this will also disappear into Hippo's coffers, via the inflated exchange rate. The local economy may suffer due to lessened peso spending.
MD
PS: Sorry about the long post but it is rather complicated and you actually have to give Hippo some credit for finding a new money pump. I don't think this is the last time this instrument will be used.
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I agree with adrianb and gringo in dr, Euro is going up against dollar. The result might be that the Euro/US tourist division will be leaning towards more Euro less US tourist spending.