Tuesday, January 4, 2011

Currency Wars Continue: Chile Strikes Back and Buys $12B US Dollars

Chile’s CB will start buying dollars massively  in the foreign-exchange market today in "an unprecedented bid to weaken the peso, Latin America’s best- performing currency in the past year". (Bloomberg)

Chile's main export is copper, and becuase copper is so expensive (due in part to a  weak US dollar), the country's economy has not been terribly affected, but it's other exporters have.

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"Chile joins other emerging nations in a battle that even De Gregorio has signaled risks being more expensive than it is helpful as the Federal Reserve pumps $600 billion into the U.S. economy while keeping its benchmark interest rate near zero. Chile’s peso has gained 17 percent against the U.S. dollar since the end of June, second only to the Australian dollar among currencies tracked by Bloomberg, as surging copper prices boost trade prospects of the world’s biggest producer of the metal".

“This is the biggest exchange rate intervention that has been announced in our country,” Finance Minister Felipe Larrain told reporters in Santiago. “It seems to us to be a measure that is on the right track and that will have an impact on the exchange rate.”

The CB expects to buy the $12 billion by the end of the 2011 and also intends to sell bonds.

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