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Peru has a floating exchange rate regime, although it is a dirty float. This means that in general the central bank intervenes to keep the currency stable in the face of speculative attack, but would allow the currency to fall if economic fundamentals dictate that the new sol is incorrectly valued.
With net international reserves of $7.1 billion on May 21, the central bank has plenty of ammunition with which to defend the sol. Peru's economic success continues unabated, and this has resulted in sizeable capital inflows.
While a healthy proportion of these inflows are in the form of long-term foreign direct investment, the flows have been putting upward pressure on the currency. The main weapon available to...