Belize's currency peg to the US dollar has supported export growth and the economy's openness during the past 30 years, according to a working paper published by the Central Bank of Belize.
The Belize dollar has been pegged to the US dollar since 1976, at an exchange rate of 2:1, and the paper's author, Ydahlia Metzgen, weighs up the benefits and costs the regime has entailed.
Metzgen finds the country has – broadly – retained its competitiveness. Between June 2008 and March 2010, the real effective exchange rate appreciated by 3.5% as the US dollar strengthened, but this followed depreciation of 10.2% in the preceding decade.
The paper attributes the depreciation to low domestic inflation in comparison with Belize's trading partners. Indeed, it notes inflation in Belize has not exceeded 7% for more than 20 years. Metzgen says Belize's exchange rate policies have been supportive of export growth and increased openness, which he says is important given its dependence on international trade.
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