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Peru's nuevo sol is the most stable currency in region
A Peruvian S/. 20 bill (Banco Central de la Reserva)
July 2, 2012
The Peruvian Nuevo Sol has been the least volatile currency among the major countries of the region, as well as compared to the euro, in the period between early 2007 and late June 2012, reported the Association of Banks (Asbanc).
It noted that the daily percentage change in the value of local currency against the dollar has fluctuated in a more limited range than in the case of other Latin American currencies such as the Colombian peso, the Chilean peso, Brazilian real and Mexican peso.
"You can even see that the Peruvian currency has been more stable than the euro," it said.
It stated that although the general trend has been of considerable volatility, in Peru this evolution has occurred in a smoother fashion than it happened to the other currencies in the sample.
The banking guild argued that the lower volatility of the currency is undoubtedly a boon for the economy, as it reduces the risk, in the sense that there is less uncertainty about the value of local currency against the dollar.
"In dollarized economies, it is important to reduce this uncertainty, because that way it allows traders who are exposed to other currencies to make a more accurate projection of the value of its assets or liabilities in the short term, leading to better decisions," Asbanc said.
It also mentioned that greater exchange rate stability favors the reduction of dollarization, in the context of strengthening the local currency.
"These factors generate a steady increase in the preference for the use of domestic currency in terms of transactions and holdings of monetary and financial assets," it stressed.
He added that greater exchange rate stability also helps reduce uncertainty about inflation expectations, which contributes to lower price volatility and therefore lower rates of inflation.
"In turn, interest rates in local currency also tend to shrink and become more stable under the strengthening of the currency, thereby generating additional incentives for productive investment, resulting in higher economic growth," the group said.
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