Take physic, pomp

LatAm forex trends

His piece is really about worldwide trends in supply capacity, but along the way Krugman also nails why LatAm currencies are appreciating. The major weakness of the export-based model clear for all to see, as if you let your currency appreciate you choke off your competitive advantage in the non-fungible export market (textiles, fruit, wine, you name it) but if you don’t, inflation is going to bite your nether regions.
Brazil and its currency swaps, Chile and its Cenbank forex intervention, Peru and its minimum bank reserve hikes, three of many recent moves that are all of the same ilk and designed to keep the currency weak enough to bring in customers for its exports. But, as an example of the top of the head, when wheat is doing this in dollar terms….
…and a country like Peru that imports 80% of the wheat it uses is against allowing its currency to appreciate against the dollar, the inevitable result is higher prices for bread, pasta etc. Anyway, go read Krugman’s blog piece, it’s short and to the point and doesn’t ladle the politics, either.

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