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Why in Argentina there are 6 types of dollars (and how they reflect the growing economic crisis that the country is experiencing) - Fintech Morning

Why in Argentina there are 6 types of dollars (and how they reflect the growing economic crisis that the country is experiencing)

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With one of the most undervalued currencies in the world – in 2021 only the Turkish lira lost more value – Argentines are used to using the US dollar as a price reference.

The dollar is also the currency of savings and the one that drives the economy, since Argentine production is heavily dependent on imported inputs.

But the growing demand for greenbacks in a country that doesn’t produce them has time and again created a problem known technically as an “external constraint.”

In Creole: the dollars are not enough , and that generates a crisis.

According to the Center for the Implementation of Public Policies for Equity and Growth (Cippec), 15 of the last economic recessions suffered by Argentina since the end of World War II arose “because the country ran out of dollars.”

To try to contain the outflow of foreign currency and preserve the reserves of the Central Bank (BCRA), the various administrations that governed during the last decade -both Kirchnerists and Macristas- applied restrictions on the purchase of foreign currency (or “cepos” , as it is known ). know locally).

These capital controls have generated a very particular phenomenon in recent years: the coexistence of a whole series of different greenback prices .

Thus, while in other parts of the world one can ask how much something is worth in local currency and how much in dollars, in Argentina the question is somewhat more complicated.

There you also have to ask what kind of dollar is being talked about. This is a key fact, since, depending on the response, the price can vary by up to 100% or more .

Here we tell you what are the six main types of dollar that are used today in Argentina.

100 dollars and 100 Argentine pesos
Argentines are used to protecting their savings in dollars, due to the many devaluations that the peso suffered.

official dollar

It is the one established by the BCRA.

It has two channels: the retail channel, used by banks and foreign exchange agencies with their clients, and the wholesale channel, which is used for large operations, such as transactions between financial entities, foreign trade, and the payment of dollarized debts.

In October 2019, hours after losing the elections, Mauricio Macri imposed a limit of US$200 per person per month for the purchase of the official dollar, in an attempt to stop a run on the dollar, triggered by his defeat.

Since then that limit has been maintained.

However, the reality is that ordinary Argentines do not even have access to that .

The reason is that, during his first year in power, the current president, Alberto Fernández, imposed two new restrictions to make the dollar less accessible.

The so-called “super stock” sought to avoid the bleeding of the BCRA, which deepened during the pandemic.

This created a new type of quote.

Savings dollar (or solidarity)

It is the dollar obtained by those who buy the official for savings or tourism (another of its names).

The authorities nicknamed it “solidarity” because whoever buys it must pay, in addition to the official dollar rate, a tax of 30% of its value plus a 35% surcharge, which can then be deducted from income tax.

For this reason, the price of the savings dollar is that of the official plus 65% .

dollars with chains and padlocks around
The “supercepo” applied by Alberto Fernández created the savings dollar.

dollar card

Whoever uses his card to pay for services in dollars (such as Netflix or Amazon) or during trips abroad also pays this extra 65%, a quote known as “dollar card”.

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This type of dollar is considered “cheap” for Argentines compared to the other alternative they have when traveling: using dollar bills, whose price is determined by the most famous quote of all.

Dolar blue

This is how the black dollar is called , bought on the illegal market, which is -for most Argentines- the most common way of accessing the dollar outside government limits.

(Some versions indicate that the unusual name is related to the jargon historically used by illegal financiers – “caves” or “little trees” – to refer to the US bill.)

Argentines use “the blue” as the main reference for the dollar , since it is the one that follows the logic of supply and demand.

When you buy or sell a house, a car, or something of great value, such as a computer or cell phone, this quote is used.

However, as it is governed by the laws of the market, this type of dollar is also much more volatile and -unlike the official one- can shoot up suddenly.

This has happened many times. The last one this week, after the resignation of Economy Minister Martín Guzmán.

When the blue skyrockets, it can reach a price that even exceeds the official price by more than 100%, like now.

This difference is known in Argentina as the ” exchange gap” , and the larger it is, the greater the pressure for the peso to be devalued.

The New York Stock Exchange
The stock dollar is obtained through the purchase and sale of bonds.

Stock dollar (or MEP)

Those who do not want to buy dollars outside the formal financial system have this alternative: the “electronic payments market” (MEP), which is a legal way to obtain foreign currency .

It is done through the buying and selling of bonds, which requires a broker, which is why it is informally known as a “stock dollar.”

The operation works like this: bonds that are quoted in both pesos and dollars are bought.

They are purchased in local currency and sold abroad.

The currencies that enter the account are subject to local regulation.

Dollar CCL

The “counted with settlement” dollar is another financial tool, but this one allows you to exchange pesos for dollars abroad.

For many companies and investors it is the main way to acquire foreign currency and take it out of the country legally.

For this reason, many economic analysts consider the CCL and the stock dollar as the best thermometers to estimate the “real” value of the dollar.

To obtain the so-called “counting on liqui” you must have an account abroad, which is why it is not something used by common Argentine savers.

Use shares or bonds listed in Argentina and also in another international market (such as Wall Street).

Like the stock dollar, they are bought in pesos, but then those assets are transferred to the account abroad and sold in exchange for dollars.

The calculation of how many dollars are bought in exchange for how many pesos determines the price of this dollar.

This operation has been widely used to transfer dollars abroad when companies and banks are prohibited or limited from paying dividends to their parent companies.

Link: https://www.bbc.com/mundo/noticias-america-latina-49572298

Author:

  • veronica smink
  • BBC News World, Buenos Aires
Author avatar
Edinson Love
https://fintechmorning.com

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