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To which currencies does the Dominican peso advance and lose ground?

The Central Bank (BC) records at least 14 currencies with which commercial transactions are made or interacts in the Dominican currency market. Daily monitoring also occurs in a context in which their behavior (contribution) has some impact on the local economy, either because there is a commercial exchange with some of these economies or, as in some cases, they are remittance issuers.

Although the price of the US dollar seems to determine the relationship of the Dominican peso with the other currencies, the results indicate no. A simple observation of the exchange market statistics determines that the realities differ from each other. The appreciation or depreciation of one with respect to the other throws dissimilarities, according to the data published by the BC.

And if so, which of the currencies show greater and lesser strength against the Dominican peso? During 2019 the dollar accumulated an appreciation of 5.1% against the local currency. Its weighting, for what it means in the commercial exchange of the Dominican Republic with the rest of the world, since it dominates the transactions, is what makes the focus on what happens with this currency in terms of its quotation.

The data at the end of 2019 establish that the peso only accumulated an appreciation against the Brazilian real, the Swedish crown and the Norwegian. With the other currencies, that is, with 11 of the 14 that the Central Bank monitors, the exchange rate showed a loss of value, which does not mean that it is negative for the economy, since tourists (and remittances) that arrive from these markets they find in the Dominican Republic a fertile land for consumption or investment. Currency generating sectors (those that export) benefit from a programmed or controlled exchange rate slippage.

monthly volumes of net purchases and exchange rate of exchange market purchase January September 2019
According to the BC, the Brazilian real depreciated -5.6% against the Dominican peso in 2019, while the Swedish crown did it at -0.13%. As of November 2019, trade with Brazil amounted to US $ 511.7 million, while with Sweden bilateral trade is around US $ 90 million, according to official 2017 figures.

There were four currencies whose appreciation against the Dominican peso was higher than the United States dollar during the year that just ended. This is the pound in the cases of sterling (United Kingdom) and Scottish (Scotland, which is also from the United Kingdom), which did so at 6.91%; of the Canadian dollar, at 6.04%, and of the Swiss franc, whose price gained 5.79% against the local currency.

The euro, which is the official currency of 19 states of the 28 that make up the European Union, only appreciated 2.22% in 2019 against the peso. This currency is also used by Andorra, Vatican City, Monaco, San Marino, Montenegro and Kosovo, but they are not part of the monetary union.

The currency of the International Monetary Fund (IMF), which is known as Special Drawing Law (SDR), advanced 3.94% against the Dominican peso in 2019, since it earned RD $ 2.76. This currency could be the only one whose quotation is related to the behavior of the others, mainly with those of those countries with greater share of participation in the basket that form it.

The Japanese yen, which rose 4.76%, and the strong bolivar, which ended with a relative gain of 5.07% against the Dominican peso, were the other currencies that advanced along with the Danish crown (1.95%) and the Chinese yuan (1.61% ).

The dollar, however, is the one taken as a reference to mark the trend (and behavior) in the domestic market. More than 80% of Dominican trade is related to the United States.

According to the Central Bank, for the period January-September 2019, financial institutions and authorized exchange agents reported a gross purchase amount of US dollars of US $ 32,340.4 million, representing a decrease of 1.4% with respect to volume of US $ 32,787.7 million registered in the same period of 2018.

Monthly volumes of net sales and exchange rate of exchange market purchase January September 2019
For the same period last year, financial institutions and authorized exchange agents reported a gross US dollar sales amount of US $ 32,930.3 million, representing a 0.2% decrease compared to the US $ 32,989.9 million registered during 2018.

In the reference period, total net purchases amounted to US $ 17,811.9 million, 1.5% lower than US $ 18,079.4 million in the same period of 2018. Total net sales amounted to US $ 18,488.5 million during the period January-September 2019 , that is, 3.6% lower than the US $ 19,188.9 million in the same period of 2018.

The data establish that of the total net purchases reported by the exchange entities, the financial institutions traded US $ 13,167.0 million, for a weighting of 73.9% of the market. On the other hand, authorized exchange agents reported a net purchase amount of US $ 4,644.9 million, equivalent to 26.1% of the total traded.

According to this report, the predominance of financial intermediation entities in net exchange transactions is even greater in the case of sales, as they sold US $ 17,819.6 million, 96.4% of the operations, while exchange agents only executed US $ 668.9 million, for a percentage of 3.6% of the total traded in the exchange market.

In its report on the behavior of the currency market, the Central Bank emphasizes that the average exchange rate of the spot market for the purchase of the US dollar in the period January-September 2019 was RD $ 50.67, for a depreciation of the weight of – 2.9% in relation to the average for the same period of 2018. The average exchange rate of the spot market for sale was RD $ 50.78 / US $, for an equal depreciation of -2.9%.

Additionally, he notes, the depreciation of the average exchange rates for the purchase and sale of the dollar during September 2019 was 2.7% and 2.8% respectively, in relation to the average of December 2018. It indicates that the accumulated depreciation of the purchase rates and sale as of September 30, 2019 was 3.9% and 4.1% respectively, compared to December 31, 2018.

Exchange rate and intermediation margins

The foreign exchange market, dominated by banks, represents one of the channels that generate profitability for financial intermediation institutions. The currencies that are most traded, in this case the dollar and the euro, are the ones with the lowest margin of banking intermediation in relative terms, but by their volume they mean everything for this market.

Regarding the dollar, the intermediation margin is around 1.16%, according to data taken from the last two weeks of 2019. With regard to the euro, the second currency most traded locally, the purchase and sale benefits exceed almost six times the dollar.

Statistics establish that each time a bank buys and sells a euro, it obtains an average of 7.19%, since the net difference is approximately RD $ 4.20 if it is taken as a reference that is between RD $ 58.35 and RD $ 62.55 for one.

The other currencies offer wider margins, but very low market weighting.

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