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  1. #5
    In my opinion the very fact that the real strengthened considerably while the peso strengthened only slightly supports the hypothesis that these South American currencies trade more against each other than against the USD. I'd further encourage you to consider the role of Mercosur in giving them at least some isolation from the dollar. Additionally, I would postulate that right now Brazil under Lula is looked upon somewhat more favorably in terms of stability by the currency traders than are the welching, defaulting, and even sniveling Argentineans are.

    Bottom line is that the US is pursuing policies that would tend, ceteris paribus, to weaken the dollar against whatever currency. The current Argentinean regime has publicly stated that they do not want their currency to strengthen, because that would make their exports less competitive. Argentina is following a policy known as "beggar thy neighbor," and I agree that is a sound policy right now in their position. In beggar thy neighbor, you allow your currency to weaken, by intervention in the currency markets or by simply printing more money. That lowers the price of your export goods in terms of the importing country's currency. That stimulates your own domestic economy by increasing the production of export goods. Argentina is doing this with goods such as wine and oranges. That, in turn, creates employment (which is why I think it is a good idea for Argentina right now).

    So, in conclusion, I think the Argentinean and US currencies are weakening equally for different reasons, causing the peso/dollar rate to remain relatively stable, while Brazil is pursuing fiscal austerity to give credibility to a left wing regime that would otherwise be viewed negatively by the currency markets. Thus, the real is strengthening against both dollar and peso.

    Fortunately the supply of pussy in Argentina continues to be fueled by imports from Paraguay. Paraguay is thus exporting pussy and importing hard currency, which can also be a sound policy if you like Paraguayan pussy. And what is not to like about Paraguayan pussy?

  2. #4
    Senior Member


    Posts: 1043

    Fx Rate

    Is it possible to leave the US and its deficits out of the equation? It does seem, logically and historically, that the strength of a currency is strongly (principally?) related to the economic/political discipline and stability of the country backing it. Argentina and Brasil both lack discipline and stability, and their currencies, representing relatively small world economies in the Western Hemisphere, are essentially tied to the USD in the sense that they are valued in terms of the USD. They did not have a gradual, yet material, gain against the dollar over the past 2-3 years, although the major world currencies (Euro, Pound, Yen, SFranc) did gain, more or less in tandem, against a weakening dollar. It seems to me that the Peso, Real, and most other Latin American currencies trade against the USD, and not against each other. That is why I dont understand, why has the Real gained so much against the dollar recently, and most importantly could it happen in Argentina?

  3. #3
    Two things that weaken a country's currency are a fiscal deficit and a trade deficit. Argentina has a huge trade deficit with Brazil. Argentina currently has a large fiscal surplus but much of that is earmarked for future principal and interest payments on their newly restructured debt, so it is essentially "spoken for."

    Ever since money stopped being made of or backed up by precious metals, the value has depended on the government's ability to derive revenue through taxation, import duties, selling passports to criminals, or whatever. And although slowly improving, Argentina has a problem collecting taxes. You think these hookers pay income tax? You think these guys selling dish towels on the corner are remitting the IVA (sales tax)? Not bloody likely.

    So leaving the US dollar out of the equation (US currently has huge fiscal AND trade deficits), the pesos could weaken considerably against the real just because of the trade deficit.

  4. #2
    Senior Member


    Posts: 1043

    US Dollar

    I happened to check the fx markets today for the 1st time in a while. I didnt know that the the Brasilian Real has made a very strong and steady move against the USD from about 3 to about 2.50 over the last several months, breaking out out of its 3.00 trading band. I consider the real to be closely linked to the peso since the devaluation and am surprised to see this. Keep and eye on the peso, a move like that makes everything 20% expensive here in USD terms in no time. Anyone know why this has happened?

  5. #1
    Administrator


    Posts: 2556

    Venues: 398

    Currency Exchange Rates - Political Discussion

    Greetings everyone,

    I started this thread to provide a seperate place for everyone to discuss their theories behind foreign currency exchange rates and to make their predicitions for future rates changes.

    Hopefully, this will help keep the thread titled "Currency Exchange" focused on actually, physically, exchanging Dollars or Euros for Argentine Pesos while actually in Argentina.

    Thanks,

    Jackson

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