Why is Colombia Buying U.S. Dollars ?

[gunDriller]

http://www.reuters.com/article/idUSN1514548320100915

allright, so Colombia is buying dollars, at the rate of $20 million a day ($600 million a month, $2.4 billion if they keep it up for 4 months, which they're talking about doing.)


BUT WHY is Colombia buying US $ ?

did the US call in a favor for their partners in the illegal drug trade ?

has the US promised ambassadorships and a nice home in Miami to Colombian finance ministers that go along with the program ?


i just can't help but wonder if the US is calling in some favors from their "old friends", to help prop up the US $.

[DMac]

I think it it because the local Columbian peso has been rising in purchasing power and it was rising too fast. See this article: Colombia Central Bank buys dollars, peso falls (http://colombiareports.com/colombia-news/economy/11862-colombia-central-bank-buys-dollars-peso-falls.html)


The peso's appreciation hurts Colombian exporters, who receive earnings in dollars but pay costs in pesos.

So the Columbian central bank is trying to deal with their currency issues as the Peso has been rising in purchasing power. This is a bad thing to happen to a currency if it is not controlled. Too much of a rise and they will not be able to afford continued exports. "No exports, no recovery."

By systematically buying dollars (they have also been buying other currencies) the Peso will not be able to rise as fast. They build a stock of dollars as insurance, a tool for buying other currencies should the need arise and to keep the export market flowing goods. If the Peso rises too fast it will lead to a precipitous crash as the locals would not be able to pay the costs required for production. They would receive less dollars coming into Columbia for their product and have to pay higher costs for production. By buying dollars and slowing the rise of their Peso they are keeping the economic circle spinning.

Oh, the joy of fiat.


Related:
US trade pact disaster for Colombian farmers: Minister (http://colombiareports.com/colombia-news/economy/11870-colombia-us-fta-poorly-negotiated-minister.html)

[Dogman]

Chavez needs toilet paper? because ponce has a lock on tp in the area?

;D

[Ponce]

Just read this morning that the US gave Colombia 30 millions dollars to fight the "drug lords".......to me that's like giving money to the state of Israel for free when they are holding 30 billions??? of US bonds.....not sure about how much they are holding.

[gunDriller]

The peso's appreciation hurts Colombian exporters, who receive earnings in dollars but pay costs in pesos.

So the Columbian central bank is trying to deal with their currency issues as the Peso has been rising in purchasing power. This is a bad thing to happen to a currency if it is not controlled. Too much of a rise and they will not be able to afford continued exports. "No exports, no recovery."


i thought Colombia's primary export is cocaine.

for which they get paid in $ and Euro's anyway.

maybe the drug cartels will start demanding payment in ... GOLD ? :o

[madfranks]

http://en.wikipedia.org/wiki/Dollarization


Dollarization can occur unofficially, when private agents prefer the foreign currency over the domestic currency. They hold for example deposits in the foreign currency because of a bad track record of the local currency; semiofficially (or officially bimonetary systems), where foreign currency is legal tender, but plays a secondary role to domestic currency; or officially, when a country ceases to issue the domestic currency and uses only foreign currency. It adopts the foreign currency as legal tender.

Whether we like it or not, the dollar is still the strongest currency competing against all the other fiats. The dollar is still a better store of value than the Columbian Peso, so they're dollarizing their economy to help brace against the economic crisis. Japan is doing the same thing. (http://www.insidefutures.com/article/174634/U.S.%20Dollar%20Soars%20against%20Japanese%20Yen%2 0after%20Intervention.html)


Early Tuesday night, with the Yen trading at another fresh 15-year low at 82.88, the Japanese government intervened by buying Dollars and selling Yen. Traders described their approach as very aggressive, hitting the market hard, fast and furious. This helped sustain Tuesday night’s rally and also may have sent a message to traders that it was serious at this time.

[Ponce]

The same as when you break into a house by sheer force by breaking the door down is the way that the US is "trying" to keep the dollar "strong"..........only thing is that at the end there will be no door and no dollar, the US knows that to keep all that's going on undercover they have to keep gold DOWNNNNNNN, and as we can see is going up anyway.

As I wrote long ago "When the people of China and India start to buy PM it will be then when the price will go up because the power to be wont be able to control the price, I don't count on the American public for this for they are broke"

There is NO WAY that the US can save the dollar because is not what then can do but rather what they have alrady done.......and that is.........to screw up the economy.

"No Export = No Recovery"... Ponce