Latin American Currencies

Mexico is a special case on several levels. Its peso (MXN) has collapsed on three separate occasions without triggering the macroeconomic collapses normally associated with such events. As a member of NAFTA, its trade with the U.S. on both the import and export sides has grown regardless of the currency. Its major source of foreign exchange, crude oil exports, is priced in USD, and it has another major source of dollars, the remittances of Mexican nationals living and working in the U.S. And like Colombia, Mexico has large, undocumented sources of U.S. dollars.

U.S. export weights to Mexico surged after NAFTA and have leveled off near a large 15 percent level. Import weights from Mexico have fallen as many of the light manufactured exports from Mexican maquiladora plants have been displaced by cheaper goods from China. All of these factors combine to make the MXN rate largely irrelevant as the U.S.’s fourth-largest trading partner.

The Brazilian real (BRL) has a short history. It came into being in 1994 following the untimely demise of a long list of predecessors, but even so it has managed to collapse three times in 12 years. In defiance of the protectionists’ theories, the impact on import weights has been minimal. Export weights to Brazil have declined since 1997, a period in which economic growth in Brazil has been strong. This may be a rare case when the currency price elasticity of demand exceeds income elasticity of demand.

Argentina, like Brazil, has gone through multiple currencies. These have included the peso ley, the austral, and a direct peg to the USD. There is also the little matter of frequent defaults, nationalizations, and other non-currency impediments to the free flow of goods and services.

Import weights from Argentina scarcely have budged since 1992. Export weights to Argentina began to fall in 1999 as the country suffered during its dollar-peg epoch, and then collapsed going into the 2002 debt default. They have rebounded somewhat with the peso (ARS); this is an income effect, not a currency effect.

Import weights from Venezuela have been quite low, as Venezuela’s chief export to the U.S., crude oil, is priced in USD. Export weights have fallen as the Bolivar has weakened during the Chavez era; it’s difficult to discern whether this is currency- related, income-related, or political.

Chile enjoys so much a reputation as South America’s success story that first-time observers have trouble absorbing the extent of the peso’s (CLP) decline since 1988. Export weights to Chile rose between 1988 and 1996 even as the CLP fell, and then fell into 2003 as the CLP fell. Factors other than currency movements likely were involved.

In addition, the weights of imports from Chile have increased even as the CLP rose after 2003. Chile’s efficiencies in agricultural exports — its leading export, copper, is priced in USD — probably account for this.
Export weights to Colombia have tracked movements in the peso (COP) in a manner consistent with standard theory. Import weights rom Colombia have increased since 2002 even in the face of a firmer COP. The U.S.-Colombia trade picture is so distorted by undocumented flows that further comments will be withheld.