What happens if the peso is devalued?

[Lucas]

...the Big Mac Index, from the July 2010 edition of The Economist.
7/27/10

Argentina Peso: 52% undervalued

Click to enlarge​

The Economist's Big Mac Index has been running for 20 years, so I'm told, with this latest edition stacking up some main players as seen. To zoom in on LatAm currencies a bit more, here's a little list:

Brazil Real: 31% overvalued
Colombia Peso: 18% overvalued
Costa Rica Colon: 3% overvalued
Peru Nuevo Sol: 5% undervalued
Chile Peso: 10% undervalued
Mexico Peso: 33% undervalued
Argentina Peso: 52% undervalued

So the cheapest regional BigMac in dollar terms right now is in Argentina, which implies the Argentine Peso is the cheapest currency out there in PPP terms at the moment (according to the Big Mac Index Theory, at least). This may explain the boom in gringo ex-pats in Buenos Aires (though I'm reliably told that they're largely behaving themselves).

 

[perry]

I have been reading for years from the likes of Gouchobob of the impeding Peso Collapse and none of this has come to pass and will not come to pass .

Economics are easy to understand if you spend some time researching and the facts are that the peso is undervalued and the american dollar grossly overvalued and this is why there is so high inflation in Argentina .

All the people who have kept American dollars in the last two years in Argentina have seen their savings plument by over 10% annually .

I do not believe in any fiat currencies atm and do not suggest that people invest in currencies. .GOLD, SILVER, land with natural resources are by far a safer investment in the current world climate.

 

[Philosoraptor]

I just don't see it happening in the foreseeable future; regardless of which political power gets to sit in the pink house next term, this just wouldn't benefit anybody.

http://www.youtube.com/watch?v=l9K4BKkLaCI

Hey, by the way! I've just registered! Maybe I just should go and introduce myself in the newcomer's board before bickering about the unpredictability of the entire region.

 

[LAtoBA]

...the Big Mac Index, from the July 2010 edition of The Economist.
7/27/10

Argentina Peso: 52% undervalued

Click to enlarge​

The Economist's Big Mac Index has been running for 20 years, so I'm told, with this latest edition stacking up some main players as seen. To zoom in on LatAm currencies a bit more, here's a little list:

Brazil Real: 31% overvalued
Colombia Peso: 18% overvalued
Costa Rica Colon: 3% overvalued
Peru Nuevo Sol: 5% undervalued
Chile Peso: 10% undervalued
Mexico Peso: 33% undervalued
Argentina Peso: 52% undervalued

So the cheapest regional BigMac in dollar terms right now is in Argentina, which implies the Argentine Peso is the cheapest currency out there in PPP terms at the moment (according to the Big Mac Index Theory, at least). This may explain the boom in gringo ex-pats in Buenos Aires (though I'm reliably told that they're largely behaving themselves).

Only that the high rate of inflation, which I can assure is not shared by any of the other countries listed, erodes the real value of the Argentine peso, as well as the purchasing power of the American dollar, AUS dollar, Euro, etc in Argentina.

 

[mini]

So the cheapest regional BigMac in dollar terms right now is in Argentina, which implies the Argentine Peso is the cheapest currency out there in PPP terms at the moment (according to the Big Mac Index Theory, at least). This may explain the boom in gringo ex-pats in Buenos Aires (though I'm reliably told that they're largely behaving themselves).

I really don't understand the purpose of this type of survey. Not everyone earns dollars. The more useful comparison would be how many minutes/hours of work it would take to buy something.

 

[LAtoBA]

Economics are easy to understand if you spend some time researching and the facts are that the peso is undervalued and the american dollar grossly overvalued and this is why there is so high inflation in Argentina .

All the people who have kept American dollars in the last two years in Argentina have seen their savings plument by over 10% annually .

I do not believe in any fiat currencies atm and do not suggest that people invest in currencies. .GOLD, SILVER, land with natural resources are by far a safer investment in the current world climate.

Controversial issue. Many economists do in fact believe the dollar is overvalued due to long-term fundamentals, mainly, how can the US sustain an unprecedented deficit in the long-run?

In any event, the macro fundamentals of the US far exceed the fundamentals in Argentina, and to say the dollar is grossly overvalued is inaccurate.

Also, it needs to be clarified that the principal reason for the Argentine peso being undervalued stems from internal manipulation (price controls, distortionary taxes etc, policies the Kirchners have sought to maintain).

 

[Lucas]

I really don't understand the purpose of this type of survey. Not everyone earns dollars. The more useful comparison would be how many minutes/hours of work it would take to buy something.

That doesn't change the fact that the Argentine peso in undervalued by design, keeping the peso undervalued keep the exports up and that is the government strategy, so far it works....but I agree inflation is a problem that needs to be controlled.

 

[davonz]

Where did the above bigmac index come from.. as it is way out.. i dont think you can get a bigmac here for US$1.78 - 7.50 pesos..

This one is from 22 july 2010 and it shows arg price pretty close to 0..

http://www.economist.com/node/16646178?story_id=16646178

And i dont even agree with it. Here it is for the rich, in the states the poor eat at macd's.. its what people are prepared to pay for a bigmac is what they charge for it. Plus arg has its own cheap meat so it should be cheaper than alot of countries..

 

[mini]

That doesn't change the fact that the Argentine peso in undervalued by design, keeping the peso undervalued keep the exports up and that is the government strategy, so far it works....but I agree inflation is a problem that needs to be controlled.

I don't know what that means. What I know is that it's very expensive to live here on a peso salary and it's getting more & more expensive every day. Somethings got to give.

 

[mini]

Where did the above bigmac index come from.. as it is way out.. i dont think you can get a bigmac here for US$1.78 - 7.50 pesos..

This one is from 22 july 2010 and it shows arg price pretty close to 0..

http://www.economist.com/node/16646178?story_id=16646178

And i dont even agree with it. Here it is for the rich, in the states the poor eat at macd's.. its what people are prepared to pay for a bigmac it what they charge for it. Plus arg has its own cheap meat so it should be cheaper than alot of countries..

Well, there goes Lucas's theory! If you see at the top of the article is says "correction". When you hit the link it goes to a foot note:

"Correction: An earlier version of the chart and the table gave a discount price for a Big Mac in Argentina. This was corrected on July 28th."