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Originally Posted by Joe
Looking at a one year chart of the US Dollar / Peso exchange rate it is moving in a straight line up and to the right. Exchange rates are notoriously volatile but there seems to be little volatility in the dollar/peso exchange rate. The peso has been losing about 7 centavos a month in value versus the dollar in a very consistent rate for the last year.
I have often heard from Argentines that they expect the devaluation to hasten after the election.
Since my Spanish is poor and I cannot read the business pages of newspapers and magazines, is it public information that the government manipulates the exchange rate or is it just rumor? And if they do manipulate the exchange rate, by what means do they do it?
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Yes, the Central Bank manages the exchange rate. Its supply and demand like anything else, when the equilibrium price isn't to the Central Bank's liking, they interfere in the market. If they want the the peso to weaken they buy dollars from the market. If they choose to defend the peso from weakening they sell dollars.
It is thought the gov't wants an orderly decline of the peso, not a sudden one, which would be politically disastrous. But, now that the elections have passed economists predict the peso will weaken at a faster pace. A weaker peso makes Argentine exports more competitive globally, but leads to inflation within Argentina by making imports more expensive.