Home » The Factors Behind the Exchange Rate in the Dominican Republic: Is Panic Justified?

The Factors Behind the Exchange Rate in the Dominican Republic: Is Panic Justified?

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The Factors Behind the Exchange Rate in the Dominican Republic: Is Panic Justified?

The Dominican Republic’s Exchange Rate and Economic Stability

Throughout 2023, the Dominican Republic experienced a rise in the exchange rate in relation to the US dollar, sparking concern among the population. This comes as the exchange rate approaches RD$60 per US$1, a level unseen since the banking crisis in 2004.

However, despite these concerns, experts highlight that the macroeconomic fundamentals of the Dominican economy remain solid, and the current situation does not reflect the past crises the country has faced.

Several factors have contributed to the rise in the exchange rate. The demand for US dollars tends to increase in December, due to local businesses replenishing inventory for the Christmas festivities, and typically converges to normal levels in January. Additionally, normal fluctuations in a free-floating regime and the international context, with high interest rates, put pressure on the exchange rate in the short term.

Economists attribute short-term fluctuations in exchange rates to adjustments in investment portfolios. The current high interest rate scenario is leading to movements in the demand and supply of dollars, affecting the exchange rate. Moreover, the real exchange rate is determined by various factors, including the risk premium, external debt levels, and the trade balance.

Considering these factors, the Dominican economy appears relatively stable. The external debt to GDP ratio has decreased, and the risk premium has remained stable. Credit rating agencies have also highlighted the stable management of Dominican debt.

The monetary policy carried out by the Central Bank of the Dominican Republic has been seen as timely and effective. Reports indicate that the country’s risk premium remains stable, and there is no danger of capital flight that would affect the exchange rate.

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Amid the rise in the exchange rate, some citizens raise concerns about dollarization. However, experts warn that dollarization would make the economy more vulnerable to external shocks and raise volatility risk.

In conclusion, while the rising exchange rate has generated concern, experts emphasize that the Dominican Republic is not facing a severe macroeconomic crisis. With its relatively solid fundamentals and the prudent management of monetary policy, the country’s economy remains stable despite short-term fluctuations in the exchange rate.

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