By Marco Aquino
LIMA (Reuters) – Peru’s sol has become Latin America’s most stable currency, shaking off political turmoil in the nation that’s had five presidents in as many years and seen deadly protests.
The reason: a growing mountain of dollars the copper-rich Andean country has accumulated on the back of major trade surpluses that hit a record $24 billion last year.
That has in turn helped Peru build up foreign currency reserves of some $83 billion – some 30% of the country’s GDP – boosting investor sentiment and giving the government huge firepower to support the sol.
“With such a quantity of dollars in the economy the exchange rate does not move,” Economy Minister Jose Arista told Reuters. “No other country in the region has that.”
He pointed to data that showed a marginal depreciation of the sol against the dollar over the last year and 5.5% since the turn of the millennium – the strongest in the region. The currency now trades at 3.72 to the U.S. dollar.
“The exchange rate will be there fluctuating between 3.72 soles or 3.78 soles and will move within that,” said Arista.
Data from Peru’s central bank shows the country’s positive trade balance has grown steadily for almost a decade, and has tripled in the last five years, driven by mineral exports and high global prices for metals like copper.
Peru also has a relatively low annual inflation rate of around 2%, the lowest in Latin America. The benchmark interest rate is 4.75%, again one of the lowest in the region.
The sol “is the exchange rate that has moved the least in Latin America for over 20 years. That gives confidence to any savers in a neighboring country,” Arista said.
SEEKING REFUGE IN THE SOL
Amid a strong global dollar, the sol ended last year with a depreciation of just over 1%, data compiled by Reuters show, but that was far better than regional neighbors.
Arista said that the currency’s stability had even made it a go-to tender in some neighboring South American countries.
Bolivians, facing an acute shortage of the dollar reserves at home, are using the sol as a safe-haven currency and referring to it as the “cholar”, a play on a slang term for Andean peoples and the Spanish word for dollar.
“Their exchange rate goes up and down, with a lot of uncertainty, and they seek refuge in a more stable currency like the Peruvian sol,” said Arista referring to Bolivia. “And in Brazil they also use it, on the border with Peru.”
(Reporting by Marco Aquino; Additional reporting by Rodrigo Campos; Editing by Adam Jourdan and Chizu Nomiyama)
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