Guatemala’s International Monetary Reserves Reach Historical High

Guatemala’s International Monetary Reserves Reach Historical High

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The Bank of Guatemala Sets Historical Record with International Monetary Reserves

The Bank of Guatemala (Banguat) has announced that as of June 19, the International Monetary Reserves (IMR) have reached a historical figure of US$21,112 million. This surpasses the previous record of US$21,106 million achieved in August 2022.

This significant increase can be attributed to the entry of US$1.7 billion on June 13, resulting from the recent placement of Eurobonds by the State of Guatemala. As a result, the IMR reached US$21,219 million on that day, compared to US$20,212 million on June 12.

These record-breaking reserves demonstrate Guatemala’s capacity to meet foreign currency obligations equivalent to almost a year of imports. The influx of dollars through family remittances and international transactions contributes to the accumulation of reserves.

International Monetary Reserves (IMR) refer to the official currencies of other countries or widely accepted currencies in international markets. They are essential for conducting transactions abroad, as the national currency, the quetzal, is not universally accepted. The United States dollar is the most commonly used currency worldwide.

Guatemala Leads the Region in International Monetary Reserves

According to the report by the Central American Monetary Council (Cemca), Guatemala is the leader in International Monetary Reserves (IMR) in the current fiscal year. The latest figures available are as follows:

  • Guatemala: US$20,173.60 million (as of April)
  • Dominican Republic: US$16,183 million (as of May)
  • Costa Rica: US$11,137.80 million (as of April)
  • Honduras: US$8,127.80 million (as of March)
  • Panama: US$6,291.23 million (as of March)
  • Nicaragua: US$4,884.43 million (as of April)
  • El Salvador: US$2,687.83 million (as of April)
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These figures indicate that the region had a total of US$69,482 million in International Monetary Reserves (IMR) as of April, with Guatemala accounting for 29% of the total.

Investment Policy of International Monetary Reserves

The Banco de Guatemala has authorized an investment policy for the international monetary reserves, aiming to maximize long-term returns while considering liquidity, security, and profitability. The reserves are divided into different tranches for effective management:

  • Liquidity Tranche: Working Capital Subtranche and Liquidity Management Subtranche
  • Investment Tranche: Subtranche of Portfolio and Subtranche of Miscellaneous Portfolios

The reserves are invested in demandable and term deposits in international financial institutions, first-class securities with specific credit ratings, gold deposits, operating reserves, future contracts, and currency forward contracts.

The Bank of Guatemala has reported that the International Monetary Reserves (IMR) have reached a historical high of $21,112 million as of June 19. This surpasses the previous record set in August 2022. The increase in reserves can be attributed to the recent placement of Eurobonds by the State of Guatemala, which resulted in the entry of $1.7 billion on June 13. This influx of funds contributes to Guatemala’s ability to meet foreign currency obligations and signals the country’s strong capacity to accumulate reserves.

How does the increase in International Monetary Reserves impact Guatemala’s economy and financial stability?

The increase in International Monetary Reserves can have both positive and negative impacts on Guatemala’s economy and financial stability.

Positives:

1. Exchange rate stability: Higher reserves can help maintain a stable exchange rate, reducing fluctuations that can negatively affect trade and investment.

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2. Economic confidence: Increased reserves indicate that the country can meet its external obligations, boosting investor and creditor confidence in the economy.

3. Smoothing import costs: Larger reserves can be utilized to pay for imports during times of economic volatility, ensuring a continuous supply of essential goods and services.

4. Reduced vulnerability to external shocks: By having higher reserves, Guatemala can better withstand external financial crises and other adverse economic events.

Negatives:

1. Opportunity cost: Holding a significant amount of reserves means allocating funds that could be used for domestic investment or public spending, potentially impacting economic growth.

2. Sterilization costs: If the central bank uses domestic currency to buy foreign reserves, it may need to issue domestic bonds or increase money supply, creating inflationary pressures.

3. Currency appreciation: An increase in reserves can lead to an appreciation of the domestic currency, making exports less competitive and potentially hampering economic growth.

4. Overreliance on external financing: A large reserve buffer might lead policymakers to rely heavily on external financing, which can expose the economy to risks associated with mounting debt obligations.

Overall, while an increase in international monetary reserves can provide advantages such as exchange rate stability and enhanced confidence, careful management is necessary to mitigate potential drawbacks and ensure long-term economic and financial stability in Guatemala.

1 thought on “Guatemala’s International Monetary Reserves Reach Historical High”

  1. This is great news for Guatemala’s economy! The significant increase in international monetary reserves reflects a strong financial position and stability. It’s an encouraging sign for future growth and development in the country.

    Reply

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