What is the relationship between remittances and the dollar exchange rate in Guatemala? – 2024-02-24 19:45:26

The exchange rate is the relationship between the value of one currency and another, that is, it indicates how many coins of one currency are needed to obtain one unit of another.

In Guatemala, the exchange rate of the national currency with reference to the dollar has remained stable and in balance for at least 10 years, between Q7.60 to Q7.80.

In this context, the president of the Bank of Guatemala (Banguat), Alvaro González Ricci, explained that the income of remittances, in addition to representing a good percentage of the Gross Domestic Product or GDP, also generates stability in the exchange rate.

“The balance of payments, which basically records that the dollars that come in related to the dollars that go out, are equal, contributing to the stability of the exchange rate”

Alvaro González Ricci, president of Banguat

In addition, he recounted what Guatemala has received in remittances in recent years:

  • In 2012, the country recorded the entry of US$4,783 million, which represented 9.6% of the total GDP
  • In 2023, a total of US$19.8 billion, which represented 19.4% of GDP
  • The projection for 2024 is US$21,685 million, 20% of GDP

“We cannot be proud of those numbers, because we would all like those remittances to be generated in Guatemala if the opportunities and jobs necessary for people not to go looking for them in the United States existed”

Exports and imports also add up

For Ricardo Rodríguez, senior economic analyst at the consulting firm Central American Business Intelligence (CABI), the reason for the stability of the exchange rate in the country “is quite simple to understand.”

In general terms, the exchange rate is moved by supply and demand, that is, the amount of dollars that are being demanded in the market versus the entry of this currency into the country.

Rodríguez explained that, if you think about the direct forms of entry and exit of dollars, the first are exports and imports; since exports bring dollars to the market and imports take dollars to pay for purchases from abroad.

In this sense, he explained that Guatemala imports more than it exports, but if exports are added to what comes in remittances, the balance remains completely stable and this is, in large part, the reason why the exchange rate is has remained stable in the last 10 years.

By combining the entry in exports and remittances, it completely offsets the exit or demand for imports.

The interviewee pointed out that in some periods during the year demand becomes unbalanced with supply and that is why there are phases where there is appreciation or fall or depreciation or rise in the exchange rate. For example:

  • Between March and April the exchange rate tends to fall or appreciate because that is when most export income comes in, particularly from the agricultural sector; So there tends to be more dollars in the market than are being demanded and that is why it appreciates or falls.
  • On the contrary, between August and October is when companies begin to increase their imports to prepare for year-end sales and that causes a higher demand for this currency and this also causes the exchange rate to tend to rise. or to depreciate in these months.

However, the movements that occur during the year are minimal, they do not tend to rise between 1% and 2% at most, if it falls it does so at Q7.60 per dollar and when it rises, it reaches Q7.90 or Q8 at most. .

So in general it remains quite stable because the central bank also has an active role in stabilizing it. So, if there are more abrupt movements or movements above normal, the Banguat enters, either to buy or sell dollars to make those movements less volatile.

“The Banguat has explained that they do this, not to change the trend, but to minimize many peaks in a short period of time”

Ricardo Rodríguez, senior economic analyst at the consulting firm CABI

Is positive?

For Rodríguez, this stability makes the variable predictable, since it does not move or moves very little. So in general terms he considers it positive, but he acknowledged that at times it makes Guatemalan products and services that participate in international markets uncompetitive.

He emphasized that the exchange rate is a factor of competitiveness and it is important to observe what happens in neighboring countries so as not to lose in this capacity.

For example, the period in which the Mexican peso went from 20 to 25 pesos per dollar, while the quetzal remained at Q7.70 or Q7.80, Guatemala lost competitiveness.

In particular cases whether it is positive or not depends on who you ask:

  • If you ask exporters, they will surely say that it benefits them if the exchange rate rises to receive more quetzales for each dollar sold abroad.
  • On the other hand, the importer will prefer it to go down to pay fewer quetzales for each import in dollars.
  • The recipient of remittances, like the exporter, would be better off if the exchange rate rose to receive more quetzales for each remittance.

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