Sunday 20 June 2021

“It’s Time For The Colombian Government to Dollarize”: Steve Hanke, Inflation Expert

“The Colombian peso is in trouble again. It’s time for the government to officially give up the peso and give Colombians what they want: dollars,” the renowned economist Steve Hanke wrote on Twitter a few days ago. The Johns Hopkins University professor has given Colombia something to talk about with his proposal to dollarize the economy.

As Professor Hanke states, in just over a year, the Colombian peso has lost 20% of its value against the dollar. In the last month alone it depreciated 7%. Further, if you look at the performance of the peso since August 2014 to the present, the Colombian currency has depreciated 45% of its value against the U.S. currency.

https://platform.twitter.com/widgets.js

- Advertisement -

In Colombia, as in any country, some sectors benefit from the devaluation of the peso. Thus, they push for the currency to lose value, even though this trend harms most Colombians. However, if depreciation is the key to making a country rich, why aren’t Venezuela or Zimbabwe, with their incredibly devalued currencies, prosperous countries?

The reality is that a country’s wealth does not come from devaluing its currency. Money is only a means of exchange, and prosperity comes from production; from creating value. Devaluation allows companies that are not competitive and do not satisfy international buyers to continue operating without having to restructure.

What advocates of monetary interventionism actually propose is to increase exports, not by increasing productivity (which would be appropriate and correct practice), but through devaluation.

Now, intervening to lower the value of the currency may increase exports at first, but sooner than later, those companies that are uncompetitive will have to reinvent themselves or go bankrupt. Devaluing is so easy that soon there will be a country that will lower prices more than we do.

- Advertisement -

The devaluation benefits a few business clusters that are unwilling to compete. The costs are borne by their workers who experience diminished purchasing power. Moreover, the workers will have to go without buying imported products that become very expensive following currency devaluation.

Professor Steve Hanke recognizes the poor performance of the Colombian peso and reopens the discussion around the need to dollarize the country’s economy.

The PanAm Post asked the economist the reason behind the poor performance of the Colombian peso. His response was the following:

The Colombian peso has shed 20% of its value in a little more than a year because Colombians don’t trust the peso. When they look ahead, they feel much more comfortable holding dollars than pesos. So, they dump their pesos and exchange them for dollars. Furthermore, the US dollar is the world’s international currency. Most commodities and even many manufactured goods are invoiced and priced in dollars. The world works on a dollar standard. It’s as simple as that.

Professor Hanke was also asked what his message would be for those sectors that persist in defending devaluation:

Those who believe that you can devalue your way to competitiveness and prosperity ignore all economic facts and evidence. If devaluation led to competitiveness and prosperity, Latin America would be the most prosperous region in the world.

So, what country is the most competitive and prosperous? It is Switzerland. It is because, since WWI, the Swiss franc has been the strongest currency in the world, appreciating one percent per year in real inflation-adjusted terms.

- Advertisement -

This means that businesses in Switzerland do not embrace the devaluation fallacy. They know that they must manufacture superior products and do so in a cost-effective way to remain competitive. That’s precisely what they do, and the result is a steady stream of trade surpluses. In short, those who embrace the weak currency idea are merely not looking at the facts. Instead, they are talking nonsense.

Professor Hanke is a Professor of Applied Economics at the Johns Hopkins University in Baltimore and is one of the world’s experts on measuring and stopping hyperinflations.

The original article “Es hora de que el Gobierno colombiano dolarice: Steve Hanke, experto en inflación” here (in Spanish)

Article originally appeared on Today Colombia and is republished here with permission.

- Advertisement -

FACT CHECK:
We strive for accuracy in its reports. But if you see something that doesn’t look right, send us an email. The Q reviews and updates its content regularly to ensure it’s accuracy.

Q24N
Q24N is an aggregator of news for Latin America. Reports from Mexico to the tip of Chile and Caribbean are sourced for our readers to find all their Latin America news in one place.

Related Articles

What can we expect for the dollar exchange with the ‘coronavirus effect’?

The dollar exchange rate is currently under strong pressure, towards a...

Colombia’s Peso Falls to All-Time Low Against US Dollar

Colombia’s currency devalued Monday to an all-time low against the United...

MOST READ

The “rebound” effect boosted growth in Costa Rica’s economic activity

QCOSTARICA - Costa Rica's economic activity registered in April 2021 a year-on-year growth of 8.8%, a figure affected by a “base” or “rebound” effect,...

Cynthia Ann Telles named new U.S. Ambassador to Costa Rica

QCOSTARICA - Today, U.S. President Joe Biden announced his nomination of Dr. Cynthia Ann Telles as United States ambassador to Costa Rica. According to the...

Fifth tropical wave precipitation will be heavier in the north of the country

QCOSTARICA - For this Wednesday, the arrival of the fifth tropical wave of the season is expected, thus reinforcing the rainy activity mainly to...

Vaccination commission endorses J & J vaccine, says no to Sinovac

QCOSTARICA - The Comisión Nacional de Vacunación y Epidemiología (CNVE)  - National Vaccination and Epidemiology Commission - endorsed the use of Johnson and Johnson...

Central America is back in the news for the wrong reasons, Costa Rica is once again the exception

QCOSTARICA - Osta Rica has been the epicenter of regional diplomacy in recent days. The successive visits of the Secretary of State of the...

The Best Sports To Play On A Beach

Costa Rica has some of the best beaches in the world. The coastline is blessed with golden sand, beautiful palm trees, and perfect blue...

American woman found lifeless in hotel bathroom in Sabana

QCOSTARICA - A sad discovery occurred this Thursday morning in a hotel located in La Sabana, in San José, the lifeless body of a...

College of Physicians negotiates donation of a million and a half vaccines against covid-19

QCOSTARICA - This week there could be very good news for the country in the fight against the coronavirus pandemic if the College of...

Today’s Vehicle Restriction: June 13, “EVENS”

Today, Sunday, June 13, only EVENS can circulate. The measure is countrywide and applied between 5:00 am and 9:00 pm, save for those under the...

WANT TO STAY UP TO DATE WITH THE LATEST!

Get our daily newsletter with the latest posts directly in your mailbox. Click on the subscribe and fill out the form. It's that simple!

Article originally appeared on Today Colombia and is republished here with permission.

Log In

Forgot password?

Forgot password?

Enter your account data and we will send you a link to reset your password.

Your password reset link appears to be invalid or expired.

Log in

Privacy Policy

Add to Collection

No Collections

Here you'll find all collections you've created before.