How will the increased printing of dollars affect Latin America?

The United States, in economic matters, has relative stability. This leads some citizens of countries with problems in their local currency to try to save in that currency. For example, Argentines are used to saving in dollars due to a devaluation of the peso, but the truth is that the dollar is also a kind of universal currency.

Although we are used to associating the dollar with inflationary "insurance", the truth is that any problem that the United States has would have immediate repercussions on the Latin American economy. Precisely, data from the Federal Reserve System of the United States indicated that the volume of dollars went from 15.33 trillion at the end of 2019 to 19.1 trillion at the end of November.

As a consequence of the pandemic, it could be said that the money supply of the US dollar grew by 24% from January to November of this year, which would imply that it was going through a cyclical phase of weakness. In other words, more dollars were created in the United States than ever, which is why this would imply some problems for this country, but possibly also for Latin America. Let's look at the situation.

The largest monetary issue in the United States

The first thing to note is that higher banknote printing would almost inevitably lead to higher inflation. Recently, the economy of the country that Joe Biden will lead suffered an average price index rise of 0.2% which represents little, but could lead to problems in the future.

Guiding data from the Federal Reserve also indicates that the supply of dollars given by M1, which implies all the money circulating to be spent, increased by 57.9% in 2020 alone. Basically, this shows more than half of all dollars circulating for easy access in less than a year, the largest increase in history.

The truth is that this possible fragility of the US dollar would have a direct influence on the Latin American economy. Following the example of Argentina, the fact that the dollar falls would affect the debt. The restructuring of the debt with the IMF could imply certain benefits when paying it off, although the situation would remain delicate since the Alberto Fernández government has little room for maneuver with respect to its finances.

A clear beneficiary of this situation could be Chile. It is the world's leading copper producer, which could welcome a depreciation of the dollar. This metal has its highest value in two and a half years, costing about $ 3.22 a pound. In other words, a cheaper dollar directly affects the prices of raw materials, which are on the rise.

Also read: Are Mexico's international reserves at risk?

If we take into account that, for the Chilean government, mining will contribute some 2,873 million dollars to the public coffers, it would not be a problem for its economy, but rather a benefit. However, there are two other cases that are much more marked and that could mean even greater benefits within national businesses: Mexico and Venezuela.

Mexico appears as one of the main historical trade partners of the United States. 70% of its manufacturing exports go there, so it would be extremely positive for the government of Andrés Manuel López Obrador. However, the clear winner would be, unexpectedly, Venezuela.

When we talk about Venezuela, a material automatically comes to mind: oil. When there is a weak dollar, the price of amenities benefits this country. Therefore, there will be a higher price of oil, which would make money enter the Venezuelan coffers. However, if we take into account the indicators of the National Assembly of this country, inflation in this country could not be straightened out solely with a depreciation of the dollar.

The rest of the region's countries, even with dollarized economies, would not be significantly affected. If we take into account that, for the IMF, 62% of all the money in circulation in the world is denominated in dollars, a depreciation could generate a change towards another currency. Even towards digital assets. However, it remains to be seen how events continue.