It is not only the ruble or the Ukrainian hryvnia that is under pressure from the strengthening dollar. The Brazilian real, Argentine and Cuban pesos, and Venezuelan bolívar are also at risk. Another blow to Latin American currencies may be inflicted by the US Federal Reserve System if it raises the key rate. The next meeting of the regulator is scheduled for this week.
This week (March 17-18) a regular meeting of the US Federal Reserve will be held, at which a decision may be made to raise the key rate to curb inflation. If the rate is raised (as expected from June), the dollar will continue to strengthen. And under pressure will be not only the euro, which has already sunk to the dollar to an 11-year low, or the yen, which is at a 7-year low, but also emerging market currencies. The index of currencies in 20 emerging markets during trading this week fell to record lows, Bloomberg reported. “If the Fed raises the rate, the dollar will reach new highs in the coming months against the national currencies of most developing countries, from Thailand and Turkey to Colombia, Brazil, and Mexico,” the analyst explained to Gazeta. Scottish bank RBS David Simmonds.
Both the Russian ruble and the Ukrainian hryvnia are at risk. But the most hopeless currencies are the Brazilian real, the Argentinean and Cuban pesos, and the Venezuelan bolívar.
Argentine Peso: Running to the Black Market
In January 2013, 5 Argentine pesos were given for one dollar, by the end of 2013, the dollar jumped to 6.5 pesos. Throughout 2014, the pesos continued to fall in price, and by the end of the year, $ 1 was already being given 8.5 pesos. The reason for the sharp depreciation of the national currency was the lifting of restrictions on capital movements. Due to criticism from the country’s President Cristina Fernandez de Kirchner, the head of the Argentine central bank, Juan Carlos Fabrega, resigned.
Now in Argentina, there is an official peso exchange rate of 8.77 pesos per dollar, and there is a black market – from 12 to 14 pesos per dollar.
Argentina was forced to impose super-tight restrictions on currency exchange due to massive capital outflows from the country.
Argentines now cannot just get dollars. According to a new government order, they must indicate the purpose of the exchange. It is allowed to charge no more than $ 100 per day.
It is possible to change more than this limit only upon presentation of documents on the need to travel abroad, after which the bank itself determines the amount of currency required by the client.
Argentina is living beyond its means, experts say. It is necessary to reduce the budget deficit. “You cannot control currency quotes without controlling budget deficits,” Faust Spotorno, an economist at Ferreres at Asociados, quoted Bloomberg as saying.
Venezuelan bolívar: four in one
Currently, there are 4 rates in Venezuela: the official one, 6.30 bolivars for $ 1, SICAD-1 (12 bolivars), the so-called SIMADI marginal currency system (172 bolivars as of February 2015), and the black market rate – more than 200 bolivars to the dollar.
President Nicolas Maduro calls the black currency market “vicious” and created by the bourgeoisie to destroy his just socialist government. The main enemy, of course, is the United States.
In conditions of a chronic shortage of currency, a deficit inevitably arises. Venezuela imports the bulk of essential goods. The local press has formed the “ten” most “elusive” products. In the first place, milk appears in it. Venezuelan hotels are short on soap, laundry detergent, and toilet paper.
The national currency rate has turned Venezuela into a two-tier society like the USSR or Cuba, says Steve Hanke, professor of applied economics at Hopkins University in Baltimore. Those with access to dollars, such as prostitutes, travel agents, taxi drivers, are able to insulate themselves from inflation by selling currency at an increasingly high black market rate. For the rest, the standard of living is constantly decreasing.
Every adult resident of the country (including foreigners) has the right to officially purchase no more than $ 3 thousand a year. Of this amount, $ 300 can be spent on the purchase of imported goods, another $ 500 can be received in cash when going on a tour abroad.
The rest of the dollars go to a bank card if the Venezuelan proves to the authorities that he is going abroad by presenting a round-trip ticket and a tax return.
The authorities have limited the ability to visit state-owned shops where prices are lower. You can get to these outlets only with your passport or fingerprints on certain days.
Cuban peso: for rum and cigars
Raoul Castro’s regime and the US government restore diplomatic relations. This campaign was launched in December 2014. Recently, the Treasury Department and the US Department of Commerce officially announced the relaxation of the embargo against Cuba. US financial institutions were given the right to open accounts in Cuba. US citizens can now use credit cards in Cuba. They are allowed to import goods purchased in Cuba for personal use: vintage Buick, Plymouth, Pontiac cars, rum, and cigars. American companies are allowed to export computers and other equipment to Cuba.
But the country’s monetary system remains unchanged for now. The system of two currencies was created in Cuba in the context of the economic crisis that began due to the collapse of the Soviet Union and the cessation of assistance from the countries – partners in the socialist camp. First, the authorities allowed the dollar to circulate freely in 1993, and then in 1994 they launched a convertible peso pegged to the dollar at a 1: 1 rate; now there are two currencies in circulation in Cuba – the peso (CUP) and the convertible peso (CUC).
CUP is an analog of hard currency, a freely convertible currency that circulated in Russia in the 90s of the last century. CUP can be used to buy imported goods.
Although the official rate of the convertible peso to the dollar is approximately one to one, a 10% tax is paid on the exchange. Foreign exchange sales tax applies only to the exchange of US dollars.
In December 2013, Raul Castro called for a program to unify the two currencies into one single system. From February 1, the Cuban authorities are launching new banknotes in denominations of 200, 500, and 1000 pesos. There was an understanding that the economy cannot function normally when there is an artificial currency in circulation that is not tied to world currencies. Investors are positive about this decision by the Cuban government, which “is gradually opening the door to foreign investment and greater privatization,” Bloomberg said.
A number of analysts believe that foreign loans may be needed to fully unite the two currencies into one Cuba. Experts expect that international loans will become more affordable for Havana in connection with the restoration of diplomatic relations with the United States after a 50-year break.
Cuba’s dual currency system is an intractable problem that will require unpopular measures to address it. It seems that the Cuban leadership does not yet know how to do this, but has repeatedly expressed admiration for the economic model of the development of China and Vietnam, experts say. The Russian way of development is less popular, although Russia has written off Soviet debts to Cuba in the amount of $ 32 billion and is ready to restore economic cooperation.