Living in Peru : your everyday companion

Living in Peru
Israel J. Ruiz

After falling to its lowest exchange rate in over a decade, the U.S. dollar has regained this week some of the value it has been losing for the past year in Peru.

To keep the U.S. currency's value from dropping to dangerously low levels, the country's government and the Central Reserve Bank (BCR) have tried everything from slashing taxes and raising interest rates to purchasing over $8.7 billion in the past several months.

The latest move to raise the reserve requirement on non-resident bank accounts by Peru's BCR has proven to be the most effective measure yet.

Since plans to hike the reserve requirement on non-resident accounts from 40 percent to 120 percent were announced this week, the dollar-sol pair has gone from trading at 2.69 to approximately 2.8.

On Wednesday afternoon, the U.S. dollar shot up to a 6-week high of 2.82.

According to economist Javier Zuñiga, the dollar's increase in value is not a trend but a momentary effect of the BCR's recently announced decision to raise reserve requirements.

He assured that the exchange rate would stabilize itself when short-term investors took their money out of Peru.

In 2007, one dollar was traded for as much as 3.5 nuevo soles. In 2008, it dropped below 2.7 soles for every dollar.