Devaluation - peso vs dollar, opinions please

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d12

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So I'd like to know from the folks here that have been following the value of the peso for a long time, what is going on with the current (de)valuation?

The US dollar has been taking a beating against every other currency recently because it has been artificially propped up by the Fed for so long and many economists predict a even bigger drop ahead (check out the outgoing IMF director's recent comments) .

What is going on with the peso devaluing even worse than the dollar? In the time the dollar has plunged to new lows against the euro, the peso has gone to 33.40/US$.

Any explanations? Is the Dominican economy so closely dependent on the US economy that the peso takes it on the chin whenever the dollar does? Even that doesn't explain why it the peso is being devalued more than the dollar recently.

Looking forward to your comments
 
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Berzin

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When Leonel took over a few years ago, the peso was artificially propped up against the dollar.

It is hard to imagine why the dollar dropped so much just because there was a change in government, but there was no reflection of this in the dominican economy as all prices remained the same.

All of a sudden things just started getting more expensive. Many expats will tell you the same, that over the last 4 years costs have spiraled upwards and it is a lot more expensive to live in the DR.

This is part of the reason why.

Another reason is not just DR related, but related to the economic ties that Latin America has with the US. Many central/south american economies are intrinsically tied to the US dollar because of trade, loans and remittances, and if there was a true reflection of the peso against the dollar, the exchange rate would probably be in the 40s to 1.
 
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Rocky

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d12 said:
So I'd like to know from the folks here that have been following the value of the peso for a long time, what is going on with the current (de)valuation?

The US dollar has been taking a beating against every other currency recently because it has been artificially propped up by the Fed for so long and many economists predict a even bigger drop ahead (check out the outgoing IMF director's recent comments) .

What is going on with the peso devaluing even worse than the dollar? In the time the dollar has plunged to new lows against the euro, the peso has gone to 33.40/US$.

Any explanations? Is the Dominican economy so closely dependent on the US economy that the peso takes it on the chin whenever the dollar does? Even that doesn't explain why it the peso is being devalued more than the dollar recently.

Looking forward to your comments
Click to expand...
I think you got lost somewhere.
The pesos rate vs the US dollar has been rising, not dropping.
It's possible that the pesos has lost some value against other currencies in the world, of that, I'm not sure, but as it stands right now, it's gaining against the US dollar.
If the pesos were dropping, then you would get less pesos per dollar, not more.
 
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isabelle13

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Rocky I don't think so. If you get more of something (peso) for your $ then it means the something (peso) is dropping in value.
 
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DRPAWA

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Rocky said:
I think you got lost somewhere.
The pesos rate vs the US dollar has been rising, not dropping.
It's possible that the pesos has lost some value against other currencies in the world, of that, I'm not sure, but as it stands right now, it's gaining against the US dollar.
If the pesos were dropping, then you would get less pesos per dollar, not more.
Click to expand...

Rocky, I believe the OP had it right. If the value of the peso drops relative to the US$, then you'd get more pesos for every US$ you exchange.

As an example, the Canadian $ has recently gained against the US$ and so now you get less Canadian $ for every US$ you exchange.

To the OP:
The answer to this peso decline may be due to what backs the peso. Although the pesos say ORO (gold), I believe they are backed by US$.
 
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Steve Costa Azul

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Jul 15, 2006
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d12 said:
So I'd like to know from the folks here that have been following the value of the peso for a long time, what is going on with the current (de)valuation?

The US dollar has been taking a beating against every other currency recently because it has been artificially propped up by the Fed for so long and many economists predict a even bigger drop ahead (check out the outgoing IMF director's recent comments) .

What is going on with the peso devaluing even worse than the dollar? In the time the dollar has plunged to new lows against the euro, the peso has gone to 33.40/US$.

Any explanations? Is the Dominican economy so closely dependent on the US economy that the peso takes it on the chin whenever the dollar does? Even that doesn't explain why it the peso is being devalued more than the dollar recently.

Looking forward to your comments
Click to expand...

Now that the Canadian $ has surpassed the US $, what is the exchange rate people are getting for both, when they buy their pesos?
Thanks,
Steve
 
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rubio_higuey

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Feb 7, 2007
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DRPAWA said:
Rocky, I believe the OP had it right. If the value of the peso drops relative to the US$, then you'd get more pesos for every US$ you exchange.

As an example, the Canadian $ has recently gained against the US$ and so now you get less Canadian $ for every US$ you exchange.

To the OP:
The answer to this peso decline may be due to what backs the peso. Although the pesos say ORO (gold), I believe they are backed by US$.
Click to expand...

No currency in the world is backed by Gold since Bretton-Woods.
 
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d12

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Feb 19, 2007
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I guess i didn't make my self clear enough:

In May of this year the peso to dollar rate was at 31.50 pesos per US dollar. Right now it is at 33.50. So the peso has devalued vs the Dollar over the last 5 months while the US dollar has devalued vs the Euro over the same period from .74 euros per US dollar to .69 euros per US dollar. So, the question is, what is the reason for the extra devaluation of the peso even though it is supposed to be pegged to the dollar?
 
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rubio_higuey

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Feb 7, 2007
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Demand and supply; and inflation.

If the US inflation is 2% per year and DR inflatrion 12% per year, technically the exchange rate should change by 10% in disfavor of the DR. And you're wrong, exchange rate did not hit low 31.5 this year. It went to about 31.8 for about a month. It has been in 32.3 to 33 range for the most part of the year .

For more reading about inflation. purchasing power parity, and effects on exchnage rate I suggest you this simple article:

Purchasing Power Parity: Link Between Exchange Rates and Inflation

Of course there is lots of external factors that affect currency exchange rate, such as mentioned demand and supply, but also country's macroeconomic development, trade (trade balance), investments.... there's no one single answer. For example, teh exchnage rate did not chnage by 10%, but maybe by 5%... shy? because of other factors, there were countering inflationary downward pressure - most specifically investments (tourism, etc. - need to buy pesos from dollars to buy things locally, pay salaries, etc.). But the PPP and inflation is the basic answer to your question. More fundamental elaboration would require getting into microeconomics and factor in all so many external factors.
 
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NALs

NALs

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Jan 20, 2003
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d12 said:
So, the question is, what is the reason for the extra devaluation of the peso even though it is supposed to be pegged to the dollar?
Click to expand...
The problem with your question is that many people say that the peso is pegged to the dollar, but in reality its not pegged to the dollar or to any other currency, for that matter.

Most people tend to not realize that the volatility that was experienced in the exchange rate during the 2000-2004 time period was unusual and due to the effects of the crisis caused by the collapse of Baninter.

The peso is now as stable as it was in the boom years of the late 1990s, with very modest devaluations, unlike the wild swings experienced during the crisis.

Once most people understand that, and I personally think most people simply don't want to understand such, then it becomes obvious that the reason why the Peso has devalued, albeit modestly, is due to the factors covered in rubio_higuey's response, mostly being supply and demand.

-NALs
 
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pelaut

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Rubio's answer is correct, but a macro-effect overlays the peso's history, and its future.
In 1949 it was par with the dollar. I've watched it go through devaluation dives since 1980 when it was 2.5/$. Each dive (or jump if you talk in terms of the rate) took place due to political thieving, while the PPP (re: Rubio) gave it a floor when the thieving was satiated. Leonel successfully manipulated a re-stabilization to a HIGHER floor (from 55 to 28) in 2005-6, the first such I've seen in 27 years. Don't expect it again.
 
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carolathompson

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Oct 11, 2007
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Just an observation, not so much on what the peso get to each dollar whether american or canadian, but how little you get for a peso today. i was in the dr 20 yrs ago and back then it was 4 peso to the dollar.......but you could go for a fabulour dinner for 4 ......top notch , apps , dinner dessert, coctails for 4 ppl .......80 peso.... thats 20 bucks......i went for 2 weeks , not AI, car rental flight food, usually paying for 2 as there was always someone to take us about, and accomodations, and of course lots of bevvies all for less that 900 bucks........cant do that now
 
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rubio_higuey

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Feb 7, 2007
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That's why lots of people think RD peso does not currently reflect its true exchange value, as it should be.

Dollar should get you about 40 pesos, based on PPP, and that is in line with your dinner. 20 dollars would then be about 800 pesos, and while the dinner for 4 would be a simple one, you could still have it for that money, 4 people, in some non-touristy restaurant. BUT... do you get top notch dinner in the USA for 20 dollars for 4 people? No. Maybe for one. Here you can get a top notch dinner for about 800 pesos for 1 person. So had the exchange rate been at 40:1, the PPP would hold.

The peso is overvalued by central bank interventions, it should be about 40:1 maintaining the current price level in the country.
 
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