Is the Gov't letting the Peso Float? Or is the market catching up?

Texas Bill

Silver
Feb 11, 2003
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Over the last few weeks, I have noticed that the Peso vs the Dollar is inching down/up (??).
A couple of weeksago the rate was around 33/1. Checking today, on FX Converter, I just noticed the rate is 35/1.
Could it be that the Central Bank's manipulation is slipping into a negative mode, or, are market forces finally taking hold and forcing a more realistic exchange rate?
I'm no financier, so will someone please enlighten me.

Texas Bill
 

A.Hidalgo

Silver
Apr 28, 2006
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I am watching that exchange rate almost every day when I read Clave Digital's web site. Some of the economist here chime in.
 
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Lambada

Gold
Mar 4, 2004
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I'm definitely NOT an economist but I think most of us were expecting a slow weakening of the peso against the dollar - I know I was expecting 35 by the end of the year. But I also think the proposed supplementary budget could be having a knock-on effect - particularly putting off until 2009 the recapitalisation of Banco Central to cover the quasi-fiscal debt.
El Nacional, la voz de todos
 

aegap

Silver
Mar 19, 2005
2,505
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The dollar actually rose quite a bit last week against the Euro. A similar story probably holds true for most the dollar vis a vis most other currencies -- including the Dominican peso. In fact, the dollar has been rising against the Euro for three consecutive weeks now, which, as far as I can remember, had not happened in over a year.
 

Tamborista

hasta la tambora
Apr 4, 2005
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The $25 sell off in crude oil certainly helped the USD the past 3 weeks. The EURUSD feels like it may be putting in a short term bottom between 1.5450 and 1.5500... let's see what the rest of hurricaine season brings us before we dismiss higher oil prices.
The RD Peso I find, has a mind of its own!

t'
 
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Texas Bill

Silver
Feb 11, 2003
2,174
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Frankly, I'm surprised it has held steady for such along time.
The spending by the gov't hasn't helped it any at all and from what I can see, investments are dropping significantly in all arenas.
Tourism went like gangbusters for a while, but has leveled off since the explosion in oil prices and the consequential cancellation of flights by American and other airlines.
Methinks the "tourism bubble" has run it's course for now.
What is needed now is investment in hard manufacturing jobs instead of so many pipedreams.
I think we'll see those if the electricity problem is ever solved and plentiful. The population is screaming for some form of employment to beat down the flooding river.

Texas Bill
 
Jan 9, 2004
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The peso would float.....

like a rock without Central Bank intervention.

To be sure, the CB has allowed the peso to weaken against the Dollar and Euro recently. If you look closely, that weakening is directly correlated to the CB's belief about overall inflation in the D.R. So, to give some credibility to the currency they allow it to depreciate according to their perceived (not actual) inflation rate.

Unfortunately, the unbridled and unchecked overspending in the campaign for President, the end of IMF austerity, the tsunami of rising prices for both oil and food, and the continued borrowing by the government against future revenues that may or may not materialize (think tourist dollars/euros), tells me that the peso is starting to look more and more like the peso of 2004, 2005.

A pattern I have noticed of late is the increasing number of threads dedicated to "investing" in CB certificates. For what it is worth, the last time I can recall this many threads about that topic was just prior to the rapid depreciation of the peso.

Respectfully,
Playacaribe2




Over the last few weeks, I have noticed that the Peso vs the Dollar is inching down/up (??).
A couple of weeksago the rate was around 33/1. Checking today, on FX Converter, I just noticed the rate is 35/1.
Could it be that the Central Bank's manipulation is slipping into a negative mode, or, are market forces finally taking hold and forcing a more realistic exchange rate?
I'm no financier, so will someone please enlighten me.

Texas Bill
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
40,964
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:cheeky:My guess is that the supply of dollars is lower. Businesses still need them to pay for goods and services with their primary trading partner. Rising gas prices in the US is causing less disposable income spending, and that effects the flow of US$ to the DR in two ways: 1) less travelers, and 2) fewer remittances from Dominicans in the US.

Supply and demand. Demand is stable (for now), but the supply of US$ is reduced.

There may be other factors involved, but the macro-level view comes down to that.

I got 34.35 @ Pichardo Cambio in Jarabacoa today.

BYW and FWIW: I totally discount the CB* manipulation conspiracy. Why? Because in a world where money changer work on razor-slim margins, there has been no black market developed for US$ or Euros. That is nearly always a symptom of money supply manipulation by a CB*.

















*Disclaimer: the use of CB ^^^above^^^ is not a reference to ~moi~, although I wish I could.
 

drtampa

Bronze
Oct 1, 2004
1,084
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48
New Ulm, TX
St Pete Times

CB, re your comments on the dollar flow from the US

David Adams column from the St Pete Times

BRANDON ? Friday afternoon used to be one of the busiest times of the week for Andrea Samudio.

When construction jobs were plentiful, migrant workers with fat paychecks would fill the lobby of her money transfer business in Brandon, eager to send their earnings home to family in Mexico and other Latin American countries.

"Some people sent money before every week. Now they only send money once a month," said Samudio at Dolex Dollar Express.

Friday afternoon, Samudio sat behind the counter and glass partition playing with her toddler, an empty lobby before her.

The souring American economy has hit workers hard everywhere, but now it's reaching across the border. The depth of the downturn is evident at money transfer companies like Dolex, which report a steep fall in remittances.

A few years ago, some families sent between $600 and $1,000 a week, Samudio said. Now they only send about $100 a week and a lucky few send $1,000 a month, she said. Mexican workers had made up the majority of her clientele, but now their share has dropped to about 20 to 30 percent, she said.

Spectacular growth in recent years had turned remittances from workers living in the United States into Mexico's second-biggest source of foreign currency, surging more than 15 percent in 2006 to a record $23-billion. Last year the flow of dollars shrank for the first time in years, dropping $600-million.

When work was plentiful, Oscar Martinez never had to wait long by the side of the road to get picked up as a day laborer. But today's economic hard times mean that Martinez, a 32-year-old Nicaraguan, barely makes enough to scrape by, let alone send money home to his family.

"There's no work anymore," he said, sitting on a plastic milk crate outside a lumber store in Hialeah, South Florida's most Hispanic city and home to many working-class immigrants.

Martinez used to send $340 a month to his mother and his wife back home. He still does the best he can to help them look after his 8-year-old daughter. But last month he managed only $200.

Around Tampa Bay, Mexican construction workers who used to take home between $700 and $1,000 a week are now earning half that working at fast-food stores and cutting lawns. Reduced incomes mean less money to send to relatives in Mexico, and less to spend locally.

In Clearwater, a magnet for Mexican immigrants from Hidalgo state since the mid 1980s, local businesses are feeling the impact.

"Right now it's just about trying to stay in business," said Leonardo Rodriguez, 41, president of the Mexican Council of Tampa Bay and the owner of two Los Amigos food markets in Dunedin and Largo. "In our community, business is down 35 to 40 percent."

Clearwater's Mexican-born auditor, Robin Gomez, hears numerous stories of less money being sent home. This month he visited Pachuca, Mexico, where his uncle owns a pharmacy that also handles distribution of money transfers. "He was telling me how he used to get thousands of remittances. Now it's down about 50 percent."

Immigrant workers are also feeling the effect of the weakening dollar. For Mexicans this means that the $7.3-billion sent home in the first four months of the year lost about $366-million in value for Mexican recipients.

The falling remittances are only partly due to lost wages, experts say. A hostile domestic immigration debate and tougher law enforcement activity are discouraging would-be migrant workers. More immigrants are switching to Europe to look for jobs.

"The declining economic conditions have removed incentives for migration to the U.S. and directed migration flows to other countries, Spain for example," said Kai Schmitz, a vice president at Microfinance International Corp., a money transfer processing company in Washington.

Finding work is so hard that many immigrants are giving up on the U.S. job market and going home. Buses leave south and central Florida every day for the border. "We used to sell five or six tickets a month. Now they are sold out," said Rodriguez, who is from a small village near the city of Ixmiquilpan in Hidalgo.

"Sometimes you have to wait three or four days to find a seat."

Oscar Martinez says he is saving up to go home. Back in Nicaragua he worked in the rice fields, earning about $100 a month. While the pay wasn't so good, hard times in Miami have made him homesick. "Even though I wasn't earning a lot, I felt better there," he said.

The ripple effect is beginning to be felt in Mexico, too, especially in those communities most dependent on remittances. "It's causing economic chaos back there," Rodriguez said. "Ixmiquilpan is a city in paralysis."
he dollar flow from the US.
 

Texas Bill

Silver
Feb 11, 2003
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The dollar has strengthed somewhat against the Euro in the last couple of days and tho' I don't speculate with my money, I would say that has a little to do with the exchange rate "wobbling" somewhat.
It remainsto be seen if the trend will continue, tho' I really don't want to see what happened a the end of El Hippo's Administration. The peso went wild in less than 6 months. From 16/1 way up to 50++/1 in what seemed like overnight.
 
Jan 9, 2004
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The Central Banks control of the peso is not a conspiracy......

but it is manipulation nonetheless. The government sets the rate not the marketplace. Quite simply, the peso is not a freely tradeable currency. Were it "freely" traded on the major currency exchanges, the real rate (value) of the peso would be known. And I respectfully suggest, given the current state of the present economy, that it would be north of its present rate.

Respectfully,
Playacaribe2


:cheeky:My guess is that the supply of dollars is lower. Businesses still need them to pay for goods and services with their primary trading partner. Rising gas prices in the US is causing less disposable income spending, and that effects the flow of US$ to the DR in two ways: 1) less travelers, and 2) fewer remittances from Dominicans in the US.

Supply and demand. Demand is stable (for now), but the supply of US$ is reduced.

There may be other factors involved, but the macro-level view comes down to that.

I got 34.35 @ Pichardo Cambio in Jarabacoa today.

BYW and FWIW: I totally discount the CB* manipulation conspiracy. Why? Because in a world where money changer work on razor-slim margins, there has been no black market developed for US$ or Euros. That is nearly always a symptom of money supply manipulation by a CB*.

















*Disclaimer: the use of CB ^^^above^^^ is not a reference to ~moi~, although I wish I could.
 

Celt202

Gold
May 22, 2004
9,098
941
113
Pichardo who either:

1) knows what he is talking about

or

2) is so full of **** his eyes are brown

has hinted that if the government allowed it the real exchange rate would be close to 50. :paranoid:
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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but it is manipulation nonetheless. The government sets the rate not the marketplace. Quite simply, the peso is not a freely tradeable currency. Were it "freely" traded on the major currency exchanges, the real rate (value) of the peso would be known. And I respectfully suggest, given the current state of the present economy, that it would be north of its present rate.

Respectfully,
Playacaribe2
"Money" is nothing more than the physical representation of exchange power. A 10% differential between what the gubmint values the dollar vs. peso, and what folks actually needing the dollar to conduct business value it would be immense. A black market either way would develop.

And it hasn't.

The CB needs to set the rate at the point necessary to insure it has the necessary amount in reserve for the country to pay it's dollar debts. The stasis of that figure is where the value should be set. If the value were lower than the market accepts, folks would not send dollars (remember, it represents value for goods and services) to the DR. If it were set too high, the flood of dollars would be staggering. Neither has happened.
 
Jan 9, 2004
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I agree with your statement....

"The CB needs to set the rate at the point necessary to insure it has the necessary amount in reserve for the country to pay its dollar debts."

Since the conclusion of the IMF monitoring, the dollar reserves of the country have been reported to be steadily declining while the debt service burden has been steadily rising, without a corresponding increase in revenue. Regardless of whether your economic philosophy is based on Keynes, Galbraith, Smith or Marx, if this scenario continues, I find it hard to see anything but increased pressure on the exchange rate.

Note too, the lack of a black market does not necessarily mean a currency is correctly valued.


Respectfully,
Playacaribe2



"Money" is nothing more than the physical representation of exchange power. A 10% differential between what the gubmint values the dollar vs. peso, and what folks actually needing the dollar to conduct business value it would be immense. A black market either way would develop.

And it hasn't.

The CB needs to set the rate at the point necessary to insure it has the necessary amount in reserve for the country to pay it's dollar debts. The stasis of that figure is where the value should be set. If the value were lower than the market accepts, folks would not send dollars (remember, it represents value for goods and services) to the DR. If it were set too high, the flood of dollars would be staggering. Neither has happened.
 

Berzin

Banned
Nov 17, 2004
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Longterm I think it is really dangerous for the DR to have such a large percentage of the country's economy dependant on tourism and remittances.

With oil prices skyrocketing and airlines cutting routes and increasing airfares, the DR may want to re-think their dependence on this sector.

And in times of recession, the diaspora will not have the income to send back home like in previous times.
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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Note too, the lack of a black market does not necessarily mean a currency is correctly valued.


Respectfully,
Playacaribe2
True. But in a place where folks are scrambling to make a peso, surely a smart entrepreneur would take advantage of the real and artificial spread. Heck, there are cambios everywhere competing for a percentage point. You don't think a 10 point spread wouldn't have them dealing with the black market?

Human nature.
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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Longterm I think it is really dangerous for the DR to have such a large percentage of the country's economy dependant on tourism and remittances.
True. But what other resource could replace them?
 
Jan 9, 2004
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It is a matter of perception versus reality.

When the cambios, like the government, need dollars they raise the Peso/Dollar, Peso/Euro rate to attract same.

Market forces have not yet signaled loudly enough that the peso is overvalued versus the Dollar/Euro, so the perception by most is that the current rate is acceptable.

When that perception changes, most likely induced by a scarcity of Dollars/Euros, then you will start to see that black market thrive again. The litmus test will be when you attempt to change larger sums of pesos into dollars/euros and the bank does not have enough on hand (as happened in 2004). At that point a quasi black market will develop and, of course, the government will then try to talk up the peso. When that does not work, then they will order the cambios/money changers to adhere to an official rate of exchange. I believe that also occurred in the D.R. when the Mejia government stationed people outside the cambios to insure that pesos were exchanged at/near the quasi-official rate. And, that policy also failed.

It was only after several huge injections of Dollars (IMF) into the economy, did the peso finally start to normalize.

As has been pointed out previously, remittances and tourism are two of the three (FTZ's are the third) largest sources of Dollars/Euros for the D.R. Given the state of the economy in the US, and with parts of the EU experiencing a slowdown, it will be interesting to see this years statistics on the number of tourists and total remittances.



Respectfully,
Playacaribe2




True. But in a place where folks are scrambling to make a peso, surely a smart entrepreneur would take advantage of the real and artificial spread. Heck, there are cambios everywhere competing for a percentage point. You don't think a 10 point spread wouldn't have them dealing with the black market?

Human nature.
 
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cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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When the cambios, like the government, need dollars they raise the Peso/Dollar, Peso/Euro rate to attract same.

Market forces have not yet signaled loudly enough that the peso is overvalued versus the Dollar/Euro, so the perception by most is that the current rate is acceptable.

Respectfully,
Playacaribe2
This is my point precisely. The market tends to be a lot more perceptive than gubmint does, and has no agenda.