Argentine Peso Crashes, “Blue Dollar” and Unease Rise

A “speculative attack” by the people?

By Bianca Fernet, Argentina.

Yesterday the informal or “blue” dollar hit 2015 highs, peaking at 15.30 ARS/USD and closing at 15.05.

This represents an increase of ARS 0.54 cents, following an increase of ARS 0.30 cents on Monday. The lie official rate has remained unchanged at 9.18 ARS/USD, which puts the gap between the official rate and informal street rate around 64.5%. So while we still haven’t reached last September’s peak of 15.67 ARS/USD, we’re getting close and we’re doing so surprisingly quickly.

The “blue chip swap”, or contado con liquidación (CCL) operation using bonds to move funds also went up ARS 0.09 to reach 13.67 ARS/USD.

Why is the peso falling so quickly, and why now?

The explanations are pretty flimsy. It’s an election year, but we knew that last week. Opposition leader Mauricio Macri’s chances of winning the upcoming presidential election are looking bleaker by the day, but again that’s hardly earth shattering news. Poll-leading FPV candidate Daniel Scioli’s running mate Carlos Zannini puts the K in Kirchnierism, but we knew that too.

Macri’s political protege Horacio Rodríguez Larreta just barely squeaked out a win as mayor of Buenos Aires over the weekend, which may have prompted people to dollarize their pesos, putting pressure on the system and inducing the currency equivalent of a feeding frenzy.

Regardless, the blue dollar rates around 15 ARS/USD are the same rates we saw a year ago. To bring the blue rate down, the government has consistently intervened heavily in two forms:

  1. It shrunk the market by prohibiting imports and external payments,
  2. It effectively flooded the street with physical bills by allowing workers to purchase dollars from banks, knowing this cash would end up exchanged for pesos in unofficial currency exchange houses known as cuevas.

These measures are still in place and the rate is again inching upwards. The Central Bank has taken steps to try to get the situation under control by requesting additional audits and information from banks, exchange houses, and finance houses, but incomplete information is really not the issue at hand. The Central Bank’s superintendent of financial entities German Feldman has also fined the following institutions this month:

  • Transcambio Foreign Exchange House: ARS $7 million
  • Eves Tourism House: ARS $2.15 million
  • Rombo Compañía Financiera: ARS $1.9 million
  • Banco Cetelem: ARS $640,000
  • Construcom: ARS $600,000
  • Percy: ARS $240,000

The Argentine peso is on shaky ground, and has been for some time. Most people believe the government can make it till the end of the year without it exploding, but another word for belief is simply faith. If faith erodes, the peso will keep falling because at the end of the day the government doesn’t have enough dollars to hold it up.

The most unsettling part of this whole fiasco is not the peso falling in value – that’s inevitable save a drastic change in government policy. What’s upsetting is that Argentine financial newspaper Ambito Financiero is referring to the “blue” dollar as the illegal dollar (like the government does,) and that people exchanging pesos for dollars are in fact masterminding a speculative currency attack to take advantage of the elections and use it as a tool to sow anxiety and woe.

Speculative attacks by definition involve actors entering a market in order to exit and make gains when some event occurs. So for this to be a speculative attack, the buyers of dollars would have to be hoarding them, ready to pounce and buy back pesos when the price falls. Put another way, to be engineering a speculative attack on the peso, these buyers would have to be attempting to destabilize the peso market in the hopes of making tremendous financial gains when they again sell their dollars back for many more pesos than they originally bought them for. Based on my in-depth study of Argentines in their natural habitat, I’m fairly certain such a complex and well-coordinated plan is not currently afoot.

And so while I hope to have assuaged your fear that the peso is under speculative attack, I for one will sleep less soundly knowing that a once-respected financial newspaper uses “blue” and “illegal” interchangeably and hasn’t quite captured the meaning of “speculative attack.” By Bianca Fernet, Argentina

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  4 comments for “Argentine Peso Crashes, “Blue Dollar” and Unease Rise

  1. Guito Vivas says:

    So, what did not happen in 2012, 2013 or 2014 may happen in 2015, right? Shall we hold our breath?

    • Wolf Richter says:

      Well, didn’t the peso get totally hammered during those years as well, year after year? You don’t have to hold your breath…. Whether or not Argentina will run out of dollars this year is another question, but it sure looks a LOT closer than it did three years ago. Give it some time, Guito Vivas. Have some patience. Countries have all sorts of resources. They can kick the can down the road for an amazingly long time. Until the road stops at a wall.

      • Diego Miranda says:

        Greetings Wolf! I share Guito’s concerns. Arguably, today Argentina is in a much better position than it was in 2012 (could discuss this a bit). Assuming that what was supposed to happen in 2012, 2013, or 2014 will now happen in 2015, too, seems to me to be both unrealistic, and not economically savvy.

        Unrealistic, because the government is today in a much better shape than it was in 2012, and because the potential liabilities resulting from the whole Griesa saga have been significantly reduced. In 2012, had the Griesa/Vultures gang prevailed, Argentina was liable to have an extension of the Griesa terms to all its debt (the one consolidated in 2005-2010 included). Today, the potential liability is USD 20 billion plus- probably much less, once it is all over, next year.

        Similarly, since 2012 the “market” has been discounting a change of government, including calls for this to occur before 2015 (by the way…)… Today the incumbent coalition is likely to stay in power, and has been able to stay afloat and well against all “market” bets, a number of national strikes, and pervasive -at times grotesque- negative press. And even though it was “feared”/”predicted” that Argentina would get to the elections in a recession, Argentina is now growing…

        Assuming that what did not happen in 2012, 2013 or 2014 will occur in 2015 is not savvy, because there is a high likelihood that the incumbent coalition will stay in power, and it is likely to have at hand the resources necessary to navigate the transition until December, and probably beyond. Neither a sitting duck, nor even a lame duck. A first in Argentina.

        Of course, it would be better to wait to buy and make a killing once the “mother of all crisis” happens- if such crisis were to happen. It has long been predicted. In Argentina it was a rule to have one per decade or so.

        But, wait at what opportunity cost?

        Run that calculation over the 2012-2014 period, compounded. Add the 2015 scenario outlined above. Add the bonus that comes with early entry. Add to the picture the fact that, unnoticed, Argentina has been able to dramatically improve its fiscal monitoring capabilities…

        No, I would not hold my breath either.

        We will see soon, anyway.

  2. Julian the Apostate says:

    Thanks for keeping us up to speed Bianca. Great report. Sure don’t hear about any of this from anyone in the ‘news’ media.

Comments are closed.