Latin America Dollar Power
Latin America dollar power is on the rise again. The power of the U.S. Dollar has been growing since 2013 as Latin countries continue to devaluate their currency against the dollar. Much of this is due to the slower growth in much of Latin America and the increasing economic intervention by governments. It’s a window of opportunity for the traveler or investor right now.
Latin America dollar power means you can buy more assets, goods, and services in Latin America with fewer dollars, particularly if you negotiate with U.S. cash. Chile may be the exception. It’s a good time to travel, visit, and live in a Latin country of your choice with the “greenback” in your pocket.
Of course, the U.S. Dollar has no intrinsic value, since it’s one of numerous “fiat” currencies based simply upon confidence. The U.S.A. was removed from the gold standard in 1971. As we all know confidence can change very quickly in our global economy, but current trends are pointing to the dollar’s strength, if not temporary.
World oil trades are still made with U.S. Dollars still, so many countries have to keep dollars in reserve. It’s a choice born out of a lack of a currency alternative right now.
Emerging market debt is creating a stronger dollar. Other world currencies may be stronger to hold, but I am not qualified to discuss that here.
The geographical location of one country to the next can have a positive or negative economic effect. Government policies can create cross border activity.
For example, policies in Argentina and Brazil benefit the Uruguayan economy when foreigners deposit their cash in banks and conduct transactions in Montevideo or Punta del Este. Many Argentines and Brazilians both invest and spend their money in Uruguay. Some Latin countries have better exchange rates than others.
Argentine and Venezuelan “black markets” are currently at the top of the list for making the most of your dollar. Although Chile is at bottom of that list since its prices closely reflect the U.S.A., certain export products, for example wine, are less expensive in the country than in the U.S. market.
In an article by Marcelo Ballvé in World Politics Review (link below) entitled “Pay Now or Suffer Later: South America’s Currency Dilemma,” the author makes this point with Argentina, as well as other Hispanic countries.
The article focuses on the continuing rise of “black market” dollars. Argentine citizens continue to use the U.S. Dollar as a savings device to defend against the devaluation of the Argentine Peso. This is not a new phenomenon in this part of the world.
The hyperinflation of the 1980’s has not been forgotten by many in Latin America, and so the author points to the potential of long term harm to the economies of several Latin counties while their governments try to apply currency controls. This may give rise to more difficult economic conditions for the masses in the future.
Argentines and Venezuelans continue to hoard and trade dollars even though it’s illegal. Venezuela and Argentina have made the U.S. dollar the de facto currency. The use of “black market” dollars is rising as their own currencies are devaluating. Both governments’ attempts at price controls have caused additional economic stress for their citizens.
The U.S. currency “black market” in Argentina and Venezuela continues to flourish. Other Latin countries are not immune to this either. What does that mean for you?
Well for one thing, your dollars may yield a significant higher value above the official exchange rate in certain Latin countries. If you’re paying cash for a transaction, you may have more purchasing power across the board than you imagine. Using dollars to directly purchase an asset, product, or service can increase your price negotiating power.
Better Exchange Rates
Currently, your U.S. Dollars deliver a significant higher value above the official exchange rate in certain Latin countries. Here’s a blog article that shows how you may take advantage of this phenomena in Argentina.
Cash for House and Car
Buying an apartment or a house in Argentina is kind of like it was in the U.S.A. back some 40 or 50 years ago when some folks chose to bring cash to the title company or closing to complete the purchase. That is what’s happening in Argentina and Venezuela with the purchase recorded in that country’s currency, but cash is delivered “under the table” directly or via wire transfer to a foreign bank. Even though it’s risky to carry cash, many Argentines are taking that risk instead of owning a very volatile currency.
Price Negotiating Power
As of today, you get a bigger “bang for the buck” in most Latin countries, except perhaps Chile. Ecuador, El Salvador, and Panama use the U.S. Dollar as their currency, but you can still buy more with the dollar than in the U.S.A.
Buy More For Less
Since last year, the continued foreign exchange trend indicates that asset prices in many Latin countries will lower against the dollar which could make the purchase of assets i.e. real estate a better value.
According to a few “twentysomethings” who recently roamed through Latin America, your dollar will buy you more in many places around Latin America today.
If you’re retired or a baby boomer looking to retire, more folks in the U.S. are considering living abroad where the dollar buys more. Also, I’m sure you’re aware of this site, but Numbeo is good place to start comparing the cost of living in various countries.
It seems that currency devaluation by governments is happening all over the planet, not just in Latin America. Certain areas are developing quicker than others. Actually, some economists may argue that today, the fiat currencies (currency based upon confidence alone) worldwide are in a race to the bottom. Some would argue that Bitcoin holds a solution. Who really knows? Wherever you live and/or work, when you visit the local grocery store or market to buy that next loaf of bread or carton of milk, inflation doesn’t lie at the checkout counter.
Whether it’s your first time to visit or you’ve been their several times, now and next year would be a great time to visit and take advantage of the current Latin America dollar power. Most folks are advising against traveling to Venezuela right now unless you have friends there. Much of the rest of Latin America has fewer serious personal security issues, but again do your research. Who knows, you may find a place you really like and decide to spend more time there or even live there for awhile to get the feel of the place.
If you are currently living in a Latin American country or in Spain or Portugal we would like to hear from you regarding the purchasing power of your dollars vs. the local currency. If so, please make a comment on this article or send us an email at email@example.com.