Got the blues? A glance at Argentina’s exchange rates

This morning I ran across this simple but informative article in The Economist:

The blue dollar: Another step towards a siege economy

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.

Calle Florida in Februay 2012, following legislation to ban unlicensed sellers of products from the streets

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.

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7 Responses to Got the blues? A glance at Argentina’s exchange rates

  1. Jim Haygood says:

    From 2003 until about mid-2011, Argentina was resisting peso appreciation with inbound capital controls — arguably more successfully than Brazil, whose real currency became very costly in dollar terms.

    But a few months before the October 2011 election, the capital influx reversed into capital flight. Why the Kirchner regime imagines an artificially strong peso to be a benefit is a mystery.

    Not that this is a purely local phenomenon. As of today, three emblematic members of the BRIC bloc — China, India and Brazil — are all cutting policy interest rates, as their economies decelerate. This is looking like a classic global derisking cycle, in which emerging market assets (and even peripheral European ones) are dumped, as capital is repatriated to the rich core countries.

    It’s an unhappy situation, but Argentina is managing it particularly badly. Successful Asian economies have long since graduated from Argentina’s antiquated import substitution model. When I see the ubiquitous ‘CORRIENTE PERONISTA’ graffiti, I’m sorely tempted to add my own tag below: ‘CORRIENTE EMPOBRECIDA.’

    • Thanks for the comment Jim. I moved to Buenos Aires in early 2010, and I remember being surprised at the reports of the peso being “overvalued.” Quite frankly I didn’t believe it then, as there was already a parallel rate for dollars that was higher. Additionally, if you consider consider the export tariffs paid by exporters, the story gets even more complex. Exporters of soy see about 2.5 pesos for every dollar of product they export, and the government keeps the rest through a series of tariffs and licensing structures. If the world price for soy can be considered fixed, efforts by the government to “keep the peso artificially low” can be viewed as a means to maintain their profit margin on exports – were they to have “allowed the currency to appreciate”, I believe the losses to government revenue via export tariffs could have easily been offset by greater ease to buy dollars more cheaply to service the debt.

      I won’t speak to pre-2010, but since I have been watching this economy I have observed that the pressures on the peso to depreciate have outweighed the pressures to appreciate. One of my criticisms of economic studies of the ARS in 2010 was that they either looked at all of the pressure to appreciate, ignoring inflation and other pressures to depreciate, or looked only at inflation and the debt, ignoring the trade barriers and ISI model.

      I would like to see (or perhaps will someday author) a data-rich piece that delves into the two competing pressures over the past 7 years to see how they play off each other.

      Keep commenting, keep reading, keep sharing! If I walk by a CORRIENTE EMPOBRECIDA tag I will think of you!

  2. Agustin +cotena says:

    As a 40 years old Argentinean-agro-economist, I really enjoyed your articles. I feel like part of the guinea pigs of a study case. But if you say Argentinean before anything else in your profile description, you are also saying: this is not new for us, this is something that happens every time to time, and I remember at least 2 or 3 similar experiences or worst. As an example running against the employee in a supermarket in the 80’s to catch a product before it was remarked with a 20% or 50% higher price (at that time it was paper label prices): Hyperinflation; also to have notes of 100,000,000 pesos to buy a candy or an “alfajor”.
    Humans are flexible and adaptable and always learning, so you want see many Argentineans worried about this as I saw a Dutch guy in the Netherlands sending a complaint letter to a company because of an increase on its peanut butter price of 15%. We just live here, we know that soon or late this crisis will happen and also pass.
    This is one of the reasons why many Argentineans professionals are quite successful around the world in crisis time, we are accustomed to chaos and somehow maybe we “need it” (crisis are also opportunities).
    Greece will exist anyway, people there will live anyway, they will work, and maybe they won’t pay any debt, but will adapt and learn….

  3. Jim Haygood says:

    ‘Exporters of soy see about 2.5 pesos for every dollar of product they export.’

    This statistic is new to me, but it’s shocking and depressing. One can see why the farmers in Buenos Aires province are up in arms about higher property taxes — ‘straw that broke the camel’s back’ sort of thing.

    Last month I was joking with an Argentine friend about becoming a smuggler, ferrying dollars and consumer goods between Buenos Aires and Colonia.

    ‘Yellow submarine,’ he replied. ‘The modus operandi, and the name of your business. Suerte!’

  4. edward says:

    Keep up the posts. I’m from the US but very interested in what happens in Argentina.

  5. Espaniol Fluido says:

    Dear Emily, your posts are lovely.

  6. Pingback: Credit where credit’s due | notparis.com

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