Updated 09:15 PM EDT, Mon, Oct 14, 2019

Colombian Peso The World's Most Devalued Currency

  • +
  • -
  • Sign up to receive the lastest news from LATINONE
Close

Falling oil prices have dropped Mexican and Colombian pesos to new lows, but despite everything related to oil dropping like flies, it is the Colombians who have lost the most.

In a report from PanamPost, the Colombian peso in now considered to be the most devalued currency in the world over the last 18 months, as it lost at least 70 percent of its value against the US Dollar.

Jorge Eduardo Castro, a financial consultant based in Antioquia, said that the devaluation of their money comes from the Colombian's excessive dependence on their dollar investments. In the last decade, the situation got even worse due to the short-lived oil boom. Castro explained, "With large amounts of foreign investment in dollars coming into the Colombian oil industry, the peso remained relatively strong, but this was only the case while the Federal Reserve purposefully weakened the dollar with its quantitative easing (QE) program."

He went on, "When the Fed ended QE at the end of 2014 and oil prices fell, the dollar became stronger and the peso began to dive."

That is not Colombia's only problem, either. Being a relative newcomer to the world of large-scale oil exports, Colombia still doesn't count with the larger foreign-exchange reserves of other countries. A professor at Medellin's Eafit University likened the country's situation to that of a family, saying, "During the oil boom years, the government behaved like a family which mistakenly thinks that extraordinary income will become permanent. Saving was out of the question."

Colombia Reports noted that the weak peso will hurt workers most of all, as the decrease in its value has increased the inflation rate, which is now more than double that of what Colombia's Central Bank anticipated at the beginning of the year. The latest peso drop will hurt more than half of the employed population of the country in 2016, considering that some 55 percent of the earn only minimum wage.

Of course, president Juan Manuel Santos has increased the minimum wage more than the inflation rate in an effort to curb the effects of the economic downfall, but it seems that employers have argued before that excessive increases in minimum wage has already impeded the creation of jobs, and may even cause layoffs if the government can't see a way to improve the status of the economy.

The government is said to have already provided austerity measures for their 2016 budget, but since the current inflation is expected to go through the end of the next year, Colombian households, for now, will have to tighten their budget to survive this economic storm.

© 2015 Latin One. All rights reserved. Do not reproduce without permission.
  • Sign up to receive the lastest news from LATINONE

Curiosidades

Real Time Analytics