This morning I ran across this simple but informative article in The Economist:
It provides a good overview of the parallel market that I referenced in my first post. I do take issue with the following:
“Calle Florida, a pedestrianised thoroughfare in the heart of Buenos Aires, is once again thronged with money-changers, as it was in the inflationary 1980s.”
While Calle Florida is thronged with money-changers, this is hardly a new phenomenon. Since at least 2010 when I moved here, it has been impossible to pass through the street without at least a dozen men muttering, “cambio, cambio, cambio” to me as I pass by. There were a few weeks back in February when AFIP agents patrolled the streets, keeping these money changers at bay, but they returned shortly after. As for the sock-banking referenced in the article, I highly doubt this is common practice. I walk Florida daily and it would look terribly odd and obvious if one were to be frequently bending over (picking their foot up?) and pulling money in and out of socks. I’d be willing to try it out though, to see how long it takes me to be robbed/questioned/arrested.
Note that when reading about the exchange rate in Argentina, there are three relevant rates to keep an eye on:
- The official rate: Also known as the white rate, this is the official exchange rate announced by the Central Bank of Argentina. This is the rate at which authorized importers can buy dollars to import goods, or that individuals who receive approval from AFIP (the tax agency) can buy dollars to travel with, send abroad, or hold. The current reality is that fewer people every day can access dollars at the official rate, and recent legislation further curtails the ability to buy official dollars. If you are a foreigner traveling, living, or working in Argentina, this is the rate you will receive from your bank if you use your ATM card to withdraw pesos, or your credit card to purchase goods in Argentina.
- The blue rate: Also known as the unofficial, black, or parallel rate. This is the exchange rate given by casas de cambio and other unofficial buyers and sellers of currency. This rate varies between cambios and rises and falls according to sentiment and government crackdowns. The last week of May and the first week of June, the rate reached a high of about 6.15 pesos to the dollar on new restrictions on travelers to access dollars. This week, the rate is back down to about 5.9 as the market calms slightly and the government puts pressure on cambios to get the rates down. This is the rate that majority of individuals and small to medium businesses face when needing to convert pesos into hard currency. It is also what savvy tourists and travelers do when they bring cash down to Argentina to exchange outside of a bank.
- The blue chip swap rate: This is the rate implied by a legal operation whereby Argentines can buy sovereign bonds or securities in pesos in Argentina and sell them abroad for dollars. This bond swap is sometimes referred to using the name Boden, referring to bonds issued following 2001 that are paid in dollars. This rate is typically higher than the blue rate, and is only accessible by large businesses with access to the national and international securities market. While this exchange is legal, it is frowned upon and closely monitored by the government and is inaccessible to the majority of individuals who lack sufficient capital and access
Since the Economist piece was published five days ago, the official (white) exchange rate has slid from 4.47 to 4.4915 pesos to the dollar. For a look at the official rate’s decline, check out this exemplary piece in Bloomberg.
What analysis of Argentina’s exchange rate debacle largely omit is that for capital flight to occur, pesos don’t merely change into dollars, they also leave the country, which has a cost. And while pictures of dogs sniffing dogs on ferries to Uruguay makes for good reading material, it is not the only way dollars leave this country.