The recovery of the past few months has turned the Colombian peso into the currency that appreciates the most in the international market. At the beginning of November 2022, during the peak of depreciation, it reached a rate of 5,107 pesos against the dollar. Today, it has appreciated by nearly 20%.
After the Storm
The Colombian peso had remained stable in value against the US dollar for a few years until the arrival of the Covid-19 pandemic in March 2020. In the two previous years, the exchange rate fluctuated between 3,000 and 3,300 pesos per dollar. The pandemic’s arrival and the mandatory lockdown initiated a storm that pushed the dollar’s value, on March 20, to 4,118 pesos. It remained around that value until October 2020 when it seemed to de-escalate, returning to pre-global health crisis values.
However, the year 2022, an election year, led to the depreciation of the Colombian national currency to an unprecedented low. According to experts, political instability, distrust in some of the new president’s proposals, and a halt in foreign investments led the peso to highly concerning levels.
This reality has led to an increase in the prices of imported products. This was evident in the high cost of appliances, which increased since the end of the previous year. However, basic household items were also affected by currency depreciation, in a context of high inflation driven by the conflict in Ukraine since February 2022.
Oil and Coal, Key Factors
The recovery of prices for raw materials Colombia exports, such as oil and coal, has been crucial for the peso’s appreciation. When these materials are sold abroad, dollars enter the economy, strengthening the national currency.
The price of oil has increased by 18% since June. The price of a Brent crude oil barrel surpassed $85 in early August. Experts explain this price surge is due to the increase in international demand and production cuts imposed by the Organization of the Petroleum Exporting Countries (OPEC).
Foreign Investment Recovery
After a few months of uncertainty, the first half of 2023 closed with the highest foreign investment in 9 years. Between January and June, $7.519 billion entered Colombia, the best result since 2014 when the figure was slightly over $8 billion. This higher investment implies greater demand for pesos, which also restores value to the national currency.
The interest rates raised by the Central Bank of Colombia, up to 13.25%, could have also contributed. Foreign capital might be seeking the high returns offered by investing in Colombia during this period of high interest rates.
Trust in the Country
Clearly, a phenomenon as complex as currency appreciation results from various factors, some of which have been mentioned. However, capital and investments are generally governed by trust. Colombia is currently seen as an attractive investment, more so than other regional economies, whose currencies are also recovering but haven’t reached the level of appreciation that the Colombian peso has achieved in the past 4 months.
The Colombian peso is the currency that has strengthened the most. It is followed by the Mexican peso, the Hungarian forint, and the Brazilian real. The economies of Brazil and Mexico, the region’s drivers, have also had a strong first half of 2023. Their positive outcomes also favor Latin American economic stability. According to experts, this recovery should continue throughout the remaining year. The exchange rate between the dollar and the Colombian peso for December 2023, as indicated by most economists, should hover around 4,100 pesos, precisely the value it is trading at today.