Political Risk Latin America Blog @PolRiskLatam

Chile: the newest currency warrior

Posted in News and Articles, Political Risk by politicalrisklatam on January 4, 2011

by John Paul Rathbone for Financial Times -Beyond Brics, January 4th, 2011.

Chile has joined the “currency wars” with a hefty $12bn war chest. Traders, for the moment, are in retreat.

The peso weakened by 4 per cent early on Tuesday after the central bank announced the evening before that it was prepared to spend the equivalent of 6 per cent of Chilean annual economic output to try and stop the peso from appreciating further.

Although Chile has now joined Brazil and Colombia in actively intervening, this was a surprise announcement. After all, Chile’s central bank is better known for its hands-off approach to its floating exchange rate. But then surprise, as they say, is a key element to any successful attack.

Will it continue to work? Currency traders seem to think that the central bank’s intention to sell $50m of dollars a day into a market where daily turnover is around $1bn might just work. After all, Chile has never intervened on this scale before – and the last time it did, in 2008, the policy worked. (continue reading… )

 

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