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This is why dollar is so expensive in these countries

Several Latin American currencies have suffered a devaluation against the dollar in recent months, but it not only has to do with domestic policy

This is why dollar is so expensive in these countries

Throughout the year, Latin American currencies have been losing their value against the US dollar due to the uncertainty in which the international market currently stands. Among the most affected currencies are those of Mexico, Argentina, Chile, and Brazil.

Leer en español: ¿Por qué el dólar está tan caro en estos países?

The devaluation of the currencies of several countries has reached historical figures. In Argentina, the dollar reached $ 30.81 pesos according to the average of the Central Bank. According to the BBC, the currency has lost more than half of its value throughout the year with 52.4%.

The Brazilian real also received a strong blow. According to El Cronista, for the first time since the beginning of 2016, the currency surpassed the barrier of 4 reais to the dollar, at this time at $ 4.2 reais. During this year, the currency has lost around 20% of its value.

Currently, one dollar is worth 687.15 Chilean pesos, being one of the currencies that has depreciated the most in Latin America along with Brazil and Argentina. Despite having recovered with respect to copper prices in June, a Chilean export star product, August again represents an anguish for the country. According to the BBC, this is the seventh most depreciated currency in the world, after the Indian rupee, with losses of around 12% of its value so far this year.

The causes behind the appreciation of the dollar worldwide are due to several reasons, which have also been triggering a series of consequences in different regions, especially in emerging economies.

Tension between the United States and Turkey

One of the triggers of this situation was "the Turkey effect". That is to say, the series of shocks that have caused the political and economic disagreements between President Donald Trump and Recep Erdogan, President of Turkey.

You may also be interested: Latin America: Is the Argentine crisis contagious?

In the midst of this dispute between the two countries, the United States decided to raise its tariffs on aluminum and steel from Turkey as a commercial sanction. As a consequence, in the midst of a moment of fragility on the part of the Turkish State, this action on its exports led to its currency, the Turkish lira, being devalued against the dollar.

Why has Latin America been affected by an event so spatially distant?

In economy, every event has a series of repercussions. In this case, the Turkish crisis triggered a series of events that would cause international investors to lose their trust not only in the Turkish panorama, but in general on emerging or similar economies and, for these countries, foreign capital is fundamental.

The Fed takes the investment capital

On the other hand, the manager of the commissioner Valora Analitik, Camilo Silva, explains how the high expectations about the increases of the rates of the Federal Reserve of the United States has led to that outside the foreign investment of the emergent economies, causing that it arrives more to the US, thus strengthening its currency due to a shortage of dollars in the region.

The Latin American economies are emerging economies, which is why they have increased dollar purchasing operations. Investors, in search of stability in the face of international uncertainty, move their capital to safer markets such as Europe or the United States, leaving the region without support.

 

LatinAmerican Post | Moya Valemtin
Translated from “¿Por qué el dolár está tan caro en estos países?”

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