Economy

Graphic: a breakdown of Central Bank’s dwindling reserves

5th September 2019

By The Essential Staff

Graphic: a breakdown of Central Bank’s dwindling reserves

The rapid decline in the Central Bank’s foreign currency reserves has been making the headlines since President Mauricio Macri’s defeat in the primaries.

While Argentines are right to be worried about the accelerated loss of US dollars, the figures can often be confusing and misleading, as different kinds of deposits are grouped under the same “reserves” label. Below is a breakdown of what they mean and how they evolved as of late.

</p> <p>An important point before breaking down the available assets is that, in comparison, the Central Bank has many more liabilities. These range from its <a href="https://gettheessential.com/economy/2019/03/28/the-pesos-downfall-could-just-be-getting-started">Leliq peso-denominated notes</a> to the country’s hard currency debt with other sovereigns and multilateral organisms, that have been used to bolster the numbers. So any <a href="https://gettheessential.com/economy/2019/05/02/imf-bends-rules-to-allow-more-central-bank-dollar-sales">discretionary use</a> of these assets risks deteriorating the balance sheet even further.</p> <img class="wp-image-3423 aligncenter" src="https://gettheessential.com/wp-content/uploads/2019/09/reserves1-300x220.jpg" alt="A breakdown of Argentina's Central Bank's foreign currency reserves" width="739" height="542" srcset="https://gettheessential.com/wp-content/uploads/2019/09/reserves1-300x220.jpg 300w, https://gettheessential.com/wp-content/uploads/2019/09/reserves1-768x563.jpg 768w, https://gettheessential.com/wp-content/uploads/2019/09/reserves1-1024x751.jpg 1024w, https://gettheessential.com/wp-content/uploads/2019/09/reserves1-600x440.jpg 600w" sizes="(max-width: 739px) 100vw, 739px" /> <p>From the more than 50 billion dollars currently in the coffers of Argentina’s monetary authority, less than 15 billion are available for policy intervention, down from almost 20 before August 11’s primaries.</p> <p>The reason for the decline is that the Argentine Central Bank has used this cash to try to <a href="https://gettheessential.com/economy/2019/05/02/imf-bends-rules-to-allow-more-central-bank-dollar-sales">contain the price of the peso</a> from falling even more in currency markets. Last week’s announcement of a <a href="https://gettheessential.com/economy/2019/08/29/debt-renegotiation-argentina-imf-foreign-bonds-local-law-imf-default">short-term debt re-profiling</a> and of a <a href="https://gettheessential.com/economy/2019/09/05/macri-re-imposes-ban-on-dollar-purchases-as-crisis-reaches-banks-currency-controls-argentina-cepo-clamp">restriction on currency exchange</a> was aimed at keeping some dollars available to stop the peso’s plunge.</p> <p>Other figures have also been falling, such as the mandatory reserves from Argentines’ deposits in the country’s banking system, pictured in yellow. This is because individuals have been taking their dollar savings out of banks due to fear about the system’s fragility.</p> <p>After that come deposits that basically can’t be touched. This includes a currency swap with China, whose figure has also been declining due to the loss in the value of the yuan. It also comprises a series of loans from the IMF and the Bank of International Settlements (BIS) that are not available for sales either, even if the IMF has authorized large sums of its loans to be burnt in currency markets already.</p> <p>Even more worryingly, the figures seen above do not show the most up to date overall number of reserves (although they were the most up to date <a href="https://www.planm.com.ar/contenidos/informes/desde-las-paso-las-reservas-brutas-ya-cayeron-us-8395-millones-en-slo-10-das-hbiles-2019-08-26">breakdown</a>). Total reserves fell from 67 billion before the election to 58 billion on August 23 to 51 billion yesterday, on September 4. This is because Central Bank sales and withdrawal of deposits from commercial banks have continued since then.</p> <img class="wp-image-3424 aligncenter" src="https://gettheessential.com/wp-content/uploads/2019/09/reserves2-300x206.jpg" alt="These were the worst months for Argentina's Central Bank's foreign currency reserves since 1991" width="739" height="507" srcset="https://gettheessential.com/wp-content/uploads/2019/09/reserves2-300x206.jpg 300w, https://gettheessential.com/wp-content/uploads/2019/09/reserves2-768x528.jpg 768w, https://gettheessential.com/wp-content/uploads/2019/09/reserves2-600x413.jpg 600w" sizes="(max-width: 739px) 100vw, 739px" /> <p>As the second infographic shows, the decline seen in August has been the worst since 1991 in absolute terms. In percentage points, it has been the fourth worse, followed by two months in 2001, the year that ended with a run against the banks, and another one in 2005, when President Néstor Kirchner paid the whole sum owed to the IMF at once.</p> <p>To sum up, although reserves can be a confusing indicator, their steady decline are a sign of how precarious the value of the peso is, and that some worries even reach the country’s banking system.</p> <p>

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