February 27, 2007

The Dollar Against the Boliviano

MABB © ®

The US Dollar has been sliding down against the Boliviano since mid 2005. It's dropped 10 cents Bolivianos.

Why? Because the central bank has increased the difference between sell and buy of the dollar, thus creating a demand for Bolivianos. As simple as that. The Bolivian economy has been slowly de-dollarizing due to the rosy macroeconomic look (budget surplus, less debt, plenty of reserves, positive growth, etc.) and the central bank's policy. The government wants Bolivians to use Bolivianos instead of dollars, since the Bolivian economy has been relatively dollarized.

One advantage is that it gives Bolivia, for the moment, a good image. Any time a currency does better compared to the dollar, the world looks with glee. However, by the same token, Bolivian products do get more pricey, and imports win. A word of caution, the idea should not be to appreciate the Boliviano's value against the dollar, but to control inflation. If the Boliviano, continues on appreciating, it might result in a negative effect on Bolivian products. That would be the most obvious observation.