Infographic: The return of the exchange-rate gap

12th September 2019

By The Essential Staff

Infographic: The return of the exchange-rate gap

With the return of restrictions on foreign currency purchases, a lot of old metrics from the Kirchnerite era (specifically between 2011 and 2015) are also making a comeback.

A crucial one, pictured below, is the gap between the official peso-to-the-dollar exchange rate and the blue-chip swap rate, which compares the peso-denominated value of Argentine shares locally with the dollar-denominated value of the same company’s shares in New York. Firms and individuals often take advantage of these dual shares to buy them at home with pesos and sell them abroad for dollars, as a way to go around the restrictions on dollar purchases in order to protect the value of their assets in a context of rising inflation.

</p> <img class="wp-image-3589 aligncenter" src="" alt="The gap between the official and the grey-market exchange rates has re-appeared in Argentina" width="762" height="559" srcset=" 300w, 768w, 1024w, 600w" sizes="(max-width: 762px) 100vw, 762px" /> <p>As the Argentine stock most frequently traded in New York, Banco Galicia is used as the benchmark to measure the blue-chip swap rate, or <em>Contado con Liquidación</em> in Spanish. In this graph, that rate, which stood at 67 pesos-per-dollar by Tuesday close, is compared to the official peso-to-the-dollar rate in Argentina, which stood at 56.</p> <p>As the picture shows, that means that the gap has shot up to near 20 percent since the re-imposition of the <em>cepo</em>, up from basically zero throughout President Mauricio Macri&#8217;s administration. Throughout Cristina Kirchner&#8217;s second period in charge, the gap hovered between 30 and 60 percent most of the time, with two sharp peaks near 80 also experienced.</p> <p>A wide gap is generally a symptom of a big underlying problem, as black and grey markets flourish in response to wide-reaching government restrictions. They also tend to cause new distortions in the economy, as <a href="">arbitrage</a> opportunities between the multiple exchange rates appear, and economic actors dedicate their time to activities that add little to nothing to the economy (at best, they serve to protect assets from the destruction of their value) instead of putting their resources to productive use.</p> <p>In recent days, abuse of blue-chip swap operations through dual-currency Argentine bonds became widespread, with investors buying cheap dollars at the official rate (and hurting <a href="">Central Bank reserves</a> in the process) and exchanging them for pesos at parallel rates, using those dual bonds as intermediaries, in an almost endless loop. Yesterday, the Central Bank issued <a href="">stricter regulations against that loop</a>, known as &#8220;rulo&#8221; in Spanish. The black market, however, is likely to find more ways of operating.</p> <p>

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