The Colombian peso is one of the most important currencies in South America, along with the Brazilian real and the US dollar itself, the current currency in Ecuador. However, competition, the pandemic and the post-pandemic crisis have greatly weakened several strong economies in the region, this includes, of course, Colombia, added to the strong dollar that was experienced during part of last year and the electoral process experienced in May, which resulted in the winner of the current president Gustavo Petro, were decisive in the behavior of this currency.
Other factors also played an important role, but in this article, we will talk about the determining factors for the devaluation of the Colombian peso and how this currency could evolve this year.
Why has the Colombian peso been so undervalued?
The Colombian currency exchange rate has been particularly negative for much of the past year, and this year the trend is set to continue in this manner. During the month of November, the dollar in Colombia cost 5,000 pesos, which marked an all-time high for the price of the dollar in Colombia.
Inflation skyrocketed and many indicators showed a clear deterioration in the Colombian economy. However, the main culprit behind this devaluation was the increase in interest rates by the FED, which until then had remained high. This allowed the Forex Colombia to increase the purchase of dollars, which as a consequence contributed even more to the growth of the value of this foreign currency.
For the moment, the Fed has decided to start to reduce said increase, which is supposed to help to recover other areas of the economy. The Fed had tried to reduce inflation, capturing money from the market through the increase in interest rates, which produced less economic activity, contributing to the decrease in prices.
What will happen now with the dollar in Colombia?
Now that the main factor that made the peso less competitive with the dollar has been reversed, the peso should be reassessed. However, there are still many factors that contribute rather to the contrary. It will depend, in addition to the United States, on the internal policies that the Colombian executive implements to face the economic problems that are already making themselves felt in the world in an almost omnipresent way, and that materialize in the form of recession.
It is possible that the peso will be reevaluated, but for this the growth of the Colombian economy must be encouraged, from investment in companies and in human talent capable of promoting it. Good decisions at the fiscal level and in international trade will also be part of the recovery of the peso. It is also probable that the recovery of the value of the peso will not be in the first line of priorities of the new government, but perhaps boost other factors that are also important for all Colombians, even if they sacrifice some other points of great importance. The global economic situation is delicate, and the Colombian situation will not escape this reality.