South America's history throughout the 1980s and 1990s is littered with the names of now-defunct currencies, such as the Argentine austral and the Brazilian cruzeiro. Now, an old vulnerability is re-emerging as an economic and political Achilles’ heel for several South American governments: exchange rates.
Some are clamping down on citizens' purchases of U.S. dollars, in attempts to prop up local money and stem capital flight. Others are promoting central bank dollar purchases and sales, or deploying derivatives contracts, to manage volatile exchange rates.
Whether deployed to defend currencies, such as the Argentine peso and Venezuelan bolívar, or smooth the kind of volatility plaguing the Brazilian real, these policies may succeed in achieving legitimate short-term economic goals. But increasingly heavy-handed interventions may bode ill for economic and political stability in a region known for its bouts of hyperinflation and currency mismanagement.