Economy

Graphic: Another drop for the free-market peso

17th September 2020

By The Essential Staff

Graphic: Another drop for the free-market peso

The crisis in Argentina’s Central Bank become impossible to hide again this week, as foreign currency has continued to leak out of its reserves, given the subsidized value at which the remaining hard money it holds is being offered to those authorized to purchase it.

</p> <p>Since Alberto Fernández took office, his government first <a href="https://gettheessential.com/economy/2019/12/19/emergency-economic-bill-makes-its-way-through-congress-alberto-fernandez-tax-hike-pension-reform">introduced a 30% tax</a> on retail buys of foreign currency and foreign products and services (trips abroad, Amazon, Uber, Netflix and the like), in order to try to bridge the gap between the price of the peso in formal and black markets. That gap is extremely dangerous, as it opens the doors to all kinds of speculation that usually ends up drying the Central Bank&#8217;s reserves.</p> <p>But that 30% tax quickly proved to be insufficient, as the gap between the official and black-market peso-dollar exchange rates grew higher, so buying dollars at the Central Bank&#8217;s price to sell them in black markets continued to be a simple, risk-less and profitable enterprise. Restrictions to access the official market have continued to be progressively tightened, but they were never enough.</p> <img class="wp-image-10851 aligncenter" src="https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01.jpg" alt="Argentina's unrestricted exchange rate, informally known as blue dollar, saw another jump after the new round of Central Bank restrictions" width="758" height="492" srcset="https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01.jpg 2500w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-300x195.jpg 300w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-1024x665.jpg 1024w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-768x499.jpg 768w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-1536x998.jpg 1536w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-2048x1330.jpg 2048w, https://gettheessential.com/wp-content/uploads/2020/09/17-sep-01-600x390.jpg 600w" sizes="(max-width: 758px) 100vw, 758px" /> <p>This week, <a href="https://www.iprofesional.com/economia/323585-cepo-extremo-al-dolar-las-nuevas-trabas-del-banco-central">Central Bank chief Miguel Pesce went even harder</a>, adding another tax on top of that 30%, and tightening restrictions even further, among other measures. As a consequence, as the graph above shows, the price for retailers who want to buy dollars or imported products and services jumped from around 100 pesos to 135, while the black-market dollar soared to 145.</p> <p>Wholesale imports continue to be cheap, at 75 pesos per dollar, as the government doesn&#8217;t want to encourage inflation through another exchange-rate jump, but authorizing imports at that subsidized cost could eventually prove unsustainable for Fernández, forcing his hand into a larger devaluation, which he&#8217;s been trying to avoid at all costs.</p> <p>

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The Essential Staff

The Essential is a premium subscription-based news platform that brings you high quality journalism and in-depth coverage in English about the changing face of Argentina’s politics and economy.