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Local currencies keep riding high

Lavagna: magnificent
performance marred by
the fact that what he claimed
to have happened in
Argentina hadn't happened  



Latin Americans learned long ago that they should not put too much trust in their currencies. Since the 1970s, hyperinflation, capital flight and economic collapse have been commonplace and many businesses have realized that holding their assets in US dollars was the only sure way to protect them. Currencies have been more stable in recent years, but even so between 2000 and 2003 they lost about half their value against the US dollar and Argentines still hold billions of dollars in savings abroad.

But things might be changing. Since 2004, a weakening US dollar, high domestic interest rates, solid financial accounts and export growth have made free-floating Latin American pesos, reais and soles a smart investment for international investors and ordinary people.

The region's currencies gained roughly 8% in inflation-adjusted terms last year. Local currencies have benefited from high domestic interest rates and relatively low US rates – investors borrow cheaply in dollars and invest in better-yielding assets.

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