A Financial Education

Day 420 – September 14, 2012

In addition to the occasional social unrest, unique driving situations, and struggles with language, there is another item I have to contend with while living abroad that never crossed my mind while I was in the States.

In the United States, I never had to worry about currency rates before.

When I lived in the Lower 48, and with apologies to Gertrude Stein, a dollar is a dollar is a dollar is a dollar.

Here, in Peru (as in most other non-USA countries), however things are quite different.

The currency of this country is the nuevo sol (which I have written about before), which has the symbol, S/.

My financial education has been broadened to include the fact that the value of a dollar, in relation to the nuevo sol, fluctuates. When the change is small or falls within a small range, this is not that large of a problem. However, as the chart below shows, the value of the dollar has fallen sharply since we arrived.

How low can you go?

When we arrived (circa August 1, 2011) the exchange rate was S/. 2.7111 per 1$.

Now, one greenback nets S/. 2.586…the lowest it has been since 1996.

The result of this decline is that when we exchange dollars for nuevo soles, we receive less of the Peruvian notes for the same amount of Washingtons, Lincolns, and Hamiltons.

At the moment, if rates continue as they go, our purchasing power will continue to erode.

There’s a phrase I thought I would never write.

So, why do rates go up and down?

As the old Econ101 adage goes, the answer is “supply and demand“.

Well, we could always move to Ecuador where they now use the US dollar.