Real gains purchasing power in Latin American countries; know which

The devaluation of the Argentine peso turned the neighboring country into an advantageous destination for Brazilian tourists. But the real’s purchasing power gain is not an isolated case, as the combination of external economic factors and domestic political crises have put pressure on the price of other Latin American currencies against not just the dollar, but the real – which helps the lives of those who are planning to travel to certain destinations in Latin America.

According to data from the Decolar website, cities such as Buenos Aires and Bariloche (Argentina), Santiago (Chile), Montevideo (Uruguay) and Lima (Peru) have been, since the beginning of the year, among the most sought after international destinations by tourists in Brazil. The choice coincides with the list of countries whose currencies have depreciated more against the dollar than the real.

According to experts consulted by the Estadão, last year the real performed better against the dollar than the Mexican, Chilean and Colombian pesos, for example. For XP economist Francisco Nobre, the rise in commodity prices also puts pressure on South American currencies, because of the countries’ dependence on products that are traded in dollars.

However, if the exchange rate of Latin American currencies varies a lot, how do you do the math to know if it is worth going to a particular country? According to C6 bank financial educator Liao Yu Chieh, the answer is: you need to research the prices of restaurants, tourist attractions and food items in supermarkets.

All this helps to understand not only the conversion, but how much the real buys in each destination. “The best way to take advantage of the moment of currency devaluation is to study the cost of living in the country and put together a roadmap”, says Chieh.

Big Mac Index

An economic index that can make the task easier is the “Big Mac index”, created by the American magazine The Economist in 1986. The guide analyzes the price of a fast-food chain sandwich in different countries in relation to the US dollar. “This index has limitations, but it is an easy way to compare the cost of living in different countries”, says Nobre.

According to the survey, in December 2021, the average price of a Big Mac in Brazil was R$22.90. At the time, the value of a snack in the US would be R$30.85 for a Brazilian, with a reduction in purchasing power of 25.77%. Based on the current exchange rate variation, this lag rises to 27.95%, with the sandwich at R$ 31.78.

O Estadão took the Big Mac index into account to analyze the purchasing power of the real in 11 countries (the US and ten Latin Americans). According to the index, the real has a higher purchasing power than that practiced in nine of these destinations.

At the current exchange rate, the strongest performance of Brazilian money is against the Colombian peso – 1 Colombian peso is equivalent to R$0.0012. In the case of Argentina, the main international destination for Brazilians, the peso devalued 22% against the real and 23% against the US dollar in one year.

Of the Latin American countries analyzed by the The Economist, the real only has lower purchasing power than the Uruguayan peso. Currently, the traditional McDonald’s sandwich would cost R$30.82 in the country, or 25.7% more than here.

Planning

If the exchange difference brings gains to the purchasing power of the real, the lack of planning at the time of conversion can undermine this difference and even leave the Brazilian at a loss. The C6 specialist recalls that when traveling internationally, it is important to be aware of currency conversion rates and credit card usage. “In Brazil, the cost for foreign currencies is high. So, travelers need to be aware of their needs”, he says.

Another tip from the financial educator is to purchase dollars instead of pesos (from any country). “When you arrive at your destination, you convert to local money, but many countries accept payments made with US currency,” he says.

Get ready

Attention to conversion

The exchange rate of Latin American currencies varies a lot, and it is necessary to do the math well to know which country is most advantageous in terms of purchasing power.

dollars

A tip is for tourists to prepare themselves by buying dollars little by little, instead of pesos (from any country). According to specialist Liao Yu Chieh, from C6 bank, in addition to the advantageous conversion, part of the establishments usually accept US currency.

Weak coin in hand

As the currencies of several Latin American countries are devaluing, buying the local currency only at the destination prevents the consumer from having losses by having ‘leftovers’ of weak currency in their hands; the dollar can always be used on a next trip.

fright

According to experts, a pitfall can be a lack of attention to foreign currency conversion rates. Care must be taken when using the credit card, which automatically includes a 6% fee, in addition to the IOF.

Beyond the Big Mac

Another important tip is to understand not only the currency conversion rate, but how much the real is worth in practice at the chosen destination. Experts in personal finance suggest that tourists research topics such as prices for restaurants, tourist attractions and food in supermarkets.

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