Dr. Yasmin Calmet

In recent months, the Peruvian sol has strengthened to become the region’s most stable currency, outperforming its Mexican and Colombian counterparts. However, macroeconomic indicators of stability mask a far more complex and contradictory reality. While controlled inflation, robust foreign reserves, and 4.2 percent GDP growth in 2024 would suggest a thriving economy, nearly 30 percent of Peru’s population lives below the poverty line, with 5.7 percent in extreme poverty, according to the National Institute of Statistics and Informatics (INEI). A strong currency guarantees neither equitable development nor social justice. On the contrary, Peru’s exchange-rate stability conceals deep inequalities that reveal the limits of an economic model that prioritizes financial resilience at the expense of productive inclusion.By definition, a strong currency maintains stable or appreciating value relative to other currencies, thereby preserving purchasing power, attracting investment, and serving as a safe-haven asset in times of uncertainty. Its strength typically hinges on factors like responsible fiscal policies, institutional credibility, inflation control, and a functional financial system. In Peru’s case, the sol’s resilience stems from a "dirty float" policy, whereby the Central Reserve Bank strategically intervenes in forex markets, buying or selling dollars to cushion sharp fluctuations. In 2024, the Peruvian currency depreciated just 1.5 percent against the dollar, closing the year at 3.761 soles per dollar and cementing Peru’s reputation as a regional bastion of stability.Recovering private spending, reduced inflation, and increased business confidence were all cited as drivers of this expansion. However, as described above, this façade of monetary stability conceals deep social and economic contradictions. This persistent socioeconomic exclusion despite positive macroeconomic indicators suggests the benefits of growth have not been equitably distributed.Furthermore, the labor market reveals structural weaknesses. The urban unemployment rate rose from 5.7 percent in November 2024 to 6.4 in December of the same year, while the employment rate saw a slight decline. This increase in unemployment rates even as the number of employed people increased can be explained by workforce growth: More people entered the job market, which expanded both the active workforce and the unemployed population. However, the most revealing statistic in this regard concerns informality: An estimated 80 percent of Peru’s workforce holds informal jobs and thus lack both labor rights and social protection. This means that even as the formal economy recovers, employment precarity remains the norm for most of the population.The Peruvian sol’s appreciation is underpinned by substantial international reserves that comprise approximately 30 percent of GDP, as well as trade surpluses primarily from the mining sector and agricultural exports. These factors have bolstered international investor confidence in the sol’s status as a regional "safe haven" currency, particularly for neighboring markets like Bolivia and Brazil. Yet this external confidence has failed to translate into an improved quality of life for Peruvians or to secure guarantees of medium-term growth sustainability. Domestic consumption remains constrained by vulnerable households’ budgetary limitations and persistent income inequality, which ultimately undermine the internal foundations for economic dynamism. This state of affairs calls for revisiting Nobel laureate Amartya Sen’s seminal critique of GDP as the sole measure of social progress. Sen emphasized that expansionary processes must be fundamentally rooted in social justice and equity. According to his framework, traditional economic indicators such as GDP growth or currency stability are insufficient for evaluating societal welfare unless accompanied by parallel advances in health, education, freedom, and civic participation. Peru’s current veneer of macroeconomic success exemplifies this kind of growing divergence between economic performance and meaningful human development.The strength of the Peruvian sol can therefore be understood as both a symbol of stability and a symptom of imbalance. While the country has maintained sound fiscal policies, accumulated international reserves, and attracted foreign capital, these macroeconomic achievements have yet to translate into substantial improvements for most citizens. Growth remains insufficiently inclusive to address historical and structural inequalities and has exposed a development model that prioritizes financial stability but is disconnected from pressing social needs.Moreover, it is crucial to recognize that monetary stability can still mask other latent risks. Peru’s economic model is reliant on trade surpluses and high reserves and remains heavily dependent on commodity exports and foreign capital inflows. This dependence leaves the country vulnerable to external shocks, such as declines in global mineral prices or geopolitical tensions disrupting trade flows. In such a scenario, the currency’s strength could erode rapidly, which demonstrates how fragile the Peruvian economy remains in the face of global volatility and domestic structural weaknesses.Thus, when assessing the sol’s position as Latin America’s strongest currency, we must look beyond technical economic indicators. The critical question is how—or whether—this definition of strength aligns with broader development objectives. Monetary stability alone cannot guarantee social inclusion, economic justice, or political cohesion. The Peruvian case demonstrates how currency appreciation can coexist with high poverty rates, labor informality, and persistent inequality.In essence, the apparent strength of the sol underscores the limitations of conventional economic success narratives. While Peru takes pride in having Latin America’s most stable currency, which is used as a reserve asset in neighboring economies like Bolivia and Brazil, its development model perpetuates the same asymmetries that have historically characterized the region. The lesson is clear: Without a political agenda that marries macroeconomic stability to social inclusion, even the strongest currencies will not resolve the deep inequalities of their societies. Peru’s case thus serves as a warning for all Latin America, for true economic strength cannot be measured not by the resilience of a currency, but rather a country’s ability to transform growth into shared prosperity.&nbsp;

How Peru’s Strong Sol Conceals Deep Social and Economic Divides