The president of the Central Bank of Uruguay (BCU), Washington Ribeirosaid that the monetary authority is not responsible for the exchange rate, but the monetary policy “it has an impact” as a consequence; and he pointed to the political system in that sense: “You are responsible for the type of change that there is today due to the democracy that we live in Uruguay, that attracts investment.”
He exchange rate lag It is an issue that remains central to the political and economic agendas, even with the dollar stabilized in the 40 pesos range —when the world is going through a period of weakness. In that sense, it was also one of the issues that was put on the table during the appearance of the government’s economic team before the Budget Commission Integrated with the Treasury of the Senate for the Accountability Report 2023.
Asked about this by the legislators, Ribeiro reiterated that the exchange rate is not a variable that is under the management of the bank because there has been no intervention since August 2021, and that the value of the dollar It is fixed by the market. In this regard, he insisted that monetary policy “affects this, not with the vocation of doing so but as a consequence,” because the objective is to combat inflation and align expectations.
Going one step further, the president of the BCU He even went so far as to blame legislators and the entire Uruguayan political system. “I am going to say something that will sound strange to you, but I want to share the responsibilities. You are responsible for the type of change that exists today in Uruguay, “All the legislators, all the politicians of this country, those who were here, those who are here and those who are to come,” he began.
However, he quickly explained where he was going with his statements: “For the political stability of Uruguay, for the democracy we live in Uruguay, for respect for the rule of law, and that is not the heritage of just one government, but rather it is a construction over time and attracts investment. Fortunately, it attracts investment, because it creates jobs and improves the quality of life of Uruguayans, which is what we all want,” he said.
“What ruler could not want that? Let us understand that as long as we have a stable country – hopefully we will continue to have it! – the exchange rate in Uruguay will not be a source of explanation or improvement of competitiveness. Unfortunately or fortunately, that is the way it is. We do have to work on the competitiveness. The future of the country is at stake there because Uruguay has to grow at high rates. It must necessarily be this way because we have a demanding society and it is good that it is so,” added Ribeiro, who assumed the presidency of the Central Bank instead of Diego Labat.
The balance sheet of companies and other factors that affect the dollar
On the other hand, also referring to the value of the exchange rate, Ribeiro said that the claims for the exchange rate lag They are also not accurate since “there is no exchange rate that closes the balance in all companies in Uruguay”. But that is exactly what makes it so that, no matter the value of the dollar, there is always some group that is dissatisfied with it.
He also insisted on the need to consider the factors that can affect the nominal exchange rate, such as, for example, the foreign direct investment (FDI)which he summarized as “venture capital that comes to generate employment.”
The significant inflow of dollars through FDI that began in 2022 and reached record levels in 2023 is one of the arguments that the government has put forward as the main explanation for the weakness of the dollar; and which, in turn, would explain the improvement in the exchange rate this year, while the arrival of foreign capital has decreased considerably during 2024.
Another factor that may have an impact is portfolio changes by non-residents, known as carry trade; although on this point, Ribeiro said that the holding of titles of the BCU of non-residents is today “extremely low”. As well as the rate differential between the one defined by the United States Federal Reserve (Fed) and the monetary policy rate of Uruguay “It is not extremely high today to explain an influx of speculative capital, and for some reason there is none.”
In the list of factors that may have an impact, he also mentioned the economic stability, motivated by low inflation, fiscal rule, competitiveness, infrastructure, trade openness, and above all, productivity.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
