from Follow the Money

Latin America joins Bretton Woods 2 (Big Time)

April 19, 2007

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Monetary Policy

Latin America may not think much of W (or the US -- more here), but they seem to have no problem financing W’s Treasury. 

 

I previously have mentioned that Brazil’s reserves increased by close to $25b in the first quarter.  Nothing much has changed.  Brazil added another $2b to its reserves last week. 

 

Brazil isn’t alone.  Argentina added $4.8b to its reserves in the first quarter.    There are rumors (denied) that Colombia is considering soft capital controls to limit the peso’s appreciation.   The central bank certainly has been active: it apparently bought about $3.9b in the first quarter to try to hold the peso down (more here).   Even Peru is joining the game.  It has bought over $500 million so far in April to try to limit the sol’s appreciation.

 

Compared to China’s reserve growth, these are fairly small numbers.  But they are big for Latin America.   They add up.

 

Right now, the world’s private investors want to finance current account deficits in the emerging world – not the United States’ current account deficit.  Not that the US equity market cares.

 

Why should it when central banks in the emerging world are still willing to turn private flows looking for yield into demand for low-yielding US Treasuries?

More on:

Monetary Policy

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