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Why does it occur and what goods and services does it affect the most?

Why does it occur and what goods and services does it affect the most?

The dollarization of goods and services is something tangible for all Uruguayans who, on many occasions, must buy and sell in US currency because that is how it is established in the game of some markets. According to a study conducted by the Central Bank of Uruguay (BCU)is linked to type of goods and to products value.

That conclusion, among others, was reached by economists Victoria Landaberry and Miguel Mello who analyzed more than 9 million advertisements for consumer goods in the domestic market, durable and non-durable, new and used, lower and higher price.

Despite the sustained efforts to de-dollarize the Uruguayan economy, dollarization remains in force in the country, understood as the “proportion of items offered in dollars with respect to the total number of ads in a category”, which in some cases -such as vehicles or real estate – reaches almost 100%.

But there is also a kind of feedback process that results in a “cultural dollarization”, defined as the “phenomenon of savings, valuation and nomination of assets and income in dollars, even when there is no economic basis for doing so”, in the work “Cultural and Financial Dollarization of Households in Uruguay” of the BCU, also carried out by Mello, next to Gerardo Licandro.

The recent study published by the Central Bank rules out, meanwhile, that the price in dollars of goods and services is related to the origin. “The fact of being an imported good was not significant to explain dollarization or persistence”, explained the economists. So what other factors play a role?

Dollarization in new and used products

According to the work of the BCU, there is a big difference between the degree of dollarization depending on whether it is a new product or a used one, and with nuances according to the item.

In the document, Landaberry and Mello define the “inherited dollarization” as the “proportion of used products with prices in dollars with respect to the dollarization of new products”.

The difference between new and used is marked as in the case of “musical instruments”, a segment where the former reach a dollarization of almost 80% and the latter barely exceed 40%. Also in gaming, where the presence of prices in dollars quadruples that of used ones (40% against 10%).

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In other cases, as invehicles” and “real estate” the difference between new and used is less, but the dollarization is almost total in both cases. In new products –or real estate–, it is almost 100%, while in used ones, it is more than 90%.

Clothes and shoes” and “music, movies and books” are some of the segments with the least presence of prices in foreign currency, with just over 10% and 3% respectively, for the cases of new products.

Price and durable and non-durable goods, the other defining axes

The durable goods they have one greater dollarization but less persistencemainly because they have a lower proportion of advertisements for used products, according to the BCU study.

Thus, Landaberry and Mello state that “durable goods have higher resale values, so they have greater dollarization, although less persistence.” On the contrary, “in the second-hand goods market, the dollarization of prices falls drastically, although it remains at a level of approximately 30%.”

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But also, both dollarization and persistence are “positively related” to the products value. The truth is that durable goods have, on average, a higher degree of dollarization than non-durable goods, but also, at a higher priceboth cases reach much higher dollarization percentagesexceeding 70% in the first case and 60% in the latter.

Lastly, the study also concludes that billing in US dollars in the domestic market may be due to a “hedging strategy” for the exchange rate risk for companies that need to make disbursements in dollars, either due to having debts in dollars or a flow of imported inputs.

Source: Ambito

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