Amid the uncertainty generated by the unexpected triumph of the “libertarian” candidate Javier Milei in Sunday’s primary elections, the Central Bank of Argentina (BCRA) announced a 22% devaluation of the peso.
The measure is a blow to a country that already has one of the highest inflation rates in the world, which exceeds 115% annually.
With the BCRA announcement -which also raised the interest rate to 118%- the “official” dollar price was $350 in the wholesale market.
The objective of this abrupt devaluation is to leave the official exchange rate a little closer to that of the other financial dollars that the country has, especially to the “blue” (or black dollar), which is the main economic reference used by the Argentines.
On Monday this market dollar – which had already risen from close to $500 to more than $600 (20%) in the two weeks before the elections – also suffered another abrupt rise, over 10%, reaching more than $680 per unit.
Most economists attribute this to the financial uncertainty that caused Milei’s surprise electoral lead.a free-market candidate, who has said that if he wins in the October 22 elections, he will dollarize the economy and close the Central Bank.
Narrowing the so-called “gap” between the value of the official dollar and that of financial dollars is one of the requirements that the International Monetary Fund (IMF), the country’s main creditor, has been demanding of the Argentine government, to which it owes some US $44,000 million contracted during the government of Mauricio Macri.
The measure would seek to stop the bleeding of dollars that has caused the BCRA reserves to be in the red.
But why does Argentina have so many types of dollars? Here we explain it to you.
The ‘traps’
Argentina has had a recurring problem of high inflation for decades, generated in part by the tendency of its governments to print money to finance their high public spending.
This leads -as is the case now- to the peso losing value.
For this reason, Argentines use the dollar as a price reference, and as a savings currency.
The national industry is also heavily dependent on imported inputs.
But the growing demand for greenbacks in a country that doesn’t produce them has time and again created a problem technically known as an “external constraint.”
In Creole: dollars are not enough, and that creates a crisis.
To try to contain the outflow of foreign currency and preserve the reserves of the Central Bank, the various administrations that governed during the last two decades – both Kirchneristas and Macristas – applied restrictions on the purchase of foreign currency, known locally as “cepos”.
These capital controls have generated a very particular phenomenon: the coexistence of a whole series of different prices for the US bill, which can vary by more than 100%.
Here we tell you what are the main types of dollars that are used today in Argentina, in addition to the official one.
dollar savings
It is the price that Argentine savers have access to in the official dollar.
Although the BCRA establishes a value for the dollar, ordinary people cannot access the US currency at that price.
They must pay a 75% surcharge and can only buy a maximum of US$200 per month (and that is if they meet a series of requirements that only a very small minority can meet).
It is for this reason that many Argentine savers turn to the illegal market to buy foreign currency.
Dolar blue
As we already mentioned, this is how the black dollar is called, which is -for most Argentines- the most common way to access the dollar outside government limits.
Some versions indicate that the unusual name is related to the jargon historically used by illegal financiers – “caves” or “little trees” – to refer to the US bill.
Argentines use “the blue” as the main reference for the dollar, since it is the one that follows the logic of supply and demand.
When one buys or sells a house, a car, or something of great value, such as a computer or cell phone, this quote is used.
However, being governed by the laws of the market, this type of dollar is also much more volatile and can shoot up suddenly, as has already happened several times before and after election days.
When the blue shoots up, it can reach a price that is even more than 100% higher than the official one.
This difference is known as the exchange “gap”, and the larger it is, the higher the pressure for the peso to devalue.
dollar card
Those who use their credit card to pay for services in dollars (such as Netflix or Amazon) or for minor expenses abroad also have their own contribution, which is equal to that of the savings dollar, with a surcharge of 75%.
But that’s only if the expense is less than $300.
Tourist or Qatar dollar
If an Argentine travels abroad and spends more than US$300, then the rate goes up to 100%.
Since this spread was announced shortly before the 2022 World Cup, which Argentina ended up winning, it was also nicknamed the Qatar dollar.
Dollar bag (or MEP)
Anyone who does not want to buy dollars outside the formal financial system has this alternative: the “electronic payment market” (MEP), which is a legal way to obtain foreign currency.
It is done through the buying and selling of bonds, which requires a stockbroker, which is why it is informally known as a “stock dollar.”
The operation works like this: bonds that are quoted in both pesos and dollars are bought.
They are purchased in local currency and sold abroad.
The currencies that enter the account are subject to local regulation.
CCL dollar
The dollar “counted with liquidation” is another financial tool, but this one allows you to exchange pesos for dollars abroad.
For many companies and investors, it is the main way to acquire foreign currency and get it out of the country legally.
For this reason, many economic analysts consider the CCL and the stock dollar as the best thermometers to estimate the “real” value of the dollar.
To obtain the so-called “counting on liquidity” you must have an account abroad, which is why it is not something used by ordinary Argentine savers.
Use stocks or bonds that are listed in Argentina and also in another international market (such as Wall Street).
Like the stock dollar, they are bought in pesos, but then those assets are transferred to the account abroad and sold in exchange for dollars.
The calculation of how many dollars are bought in exchange for how many pesos determines the price of this dollar.
These operations have been widely used to transfer dollars abroad when companies and banks are prohibited or limited from sending dividends to their parent companies.
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BBC-NEWS-SRC: https://www.bbc.com/mundo/articles/cqq4qqyd30no, IMPORTING DATE: 2023-08-14 20:20:14
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