Argentina: Black market peso recovers amid government intervention
June 17, 2013
The Argentinean peso (ARS) recovered some ground in the black market in recent weeks. On 12 June, the black-market peso traded at 8.55 per USD, which was 14.6% stronger than the level seen in the same day of last month. The pick-up in the black market currency appears to be the result of a three-pronged strategy adopted by Argentinean authorities in order to stem the fall of the unofficial peso.
First, government agencies - including Anses, the government pension fund - were forced to sell bonds denominated in USD, according to reports by local sources. The sales were meant to reduce the attractiveness of the U.S. currency in the underground market by offering a cheaper alternative for investors to access USD-denominated assets. In addition, large volumes of stocks and bonds are being sold, an indication that the government is intervening in the market, according to some analysts. By lowering the price for stocks and bonds, the move also attacks a legal mechanism to get dollars, which involves the purchase of assets in Argentina followed by a sale of these same assets abroad to obtain dollars. A lower price implies reduced returns for traders and, in turn, a lower unofficial ARS per USD rate.
Second, the government, in particular Secretary of Domestic Trade Guillermo Moreno, is directly asking traders to exchange the peso at a lower rate. Government pressure, combined with fears of raids on currency dealers, has forced the black market to freeze peso trades in various occasions over the course of the past month, which translated in a more stable value for the unofficial currency. According to reports by local sources, however, deals continue to be made at lower values for the peso unreported to local authorities, thus resulting in a parallel unofficial exchange rate.
Finally, the government launched a controversial tax amnesty for holders of undeclared dollars who repatriate their money (see Black market peso drops to lowest level on record - 18 May 2013). According to the original scheme, the Central Bank would issues deposit certificates in exchange for undeclared dollars to finance transactions in the real estate sector. These certificates (Cedin) are now allowed to be used for any type of transaction. The government hopes that most of the unofficial peso transactions will now be channelled through the Cedin. This would create a de-facto parallel official currency, whose value would be lower than the official peso and closer to the black market quote.
The appreciation of the black-market peso contrasted with the continued weakening of the official exchange rate. On 12 June, the official ARS traded at 5.32 per USD, which was 1.7% weaker than the level seen in the same day last month and 18.5% lower in annual terms. Argentinean authorities are, nonetheless, continuing to deplete reserves to sustain the peso on the official market. Foreign currency reserves dropped to USD 38.5 billion by the end of May, marking the lowest end-of-month reading since March 2007.