Official Exchange Rate Manipulation in Argentina

Posted on Sep 16, 2020
Raleigh, North Carolina

According to an article on Clarín, The Central Bank of Argentina has taken new measures restricting access and usage of US dollars in the country[1]. Inflation is rampant in Argentina; when I spent a year there in 2012 the official exchange rate was 1 USD to 4.5 ARS, and according to the article it’s now 1 USD to 130 ARS. The yearly inflation rate is around 25%. So if one wants to save for the future in Argentina, it makes no sense to save in Argentian Pesos, the real value of your savings decrease over time. For example, if I had put 100 USD into an Argentinian peso-denominated savings account when I was there in 2012 and returned today to withdraw it and coverted it back to USD, I’d only get 3 USD for it. In other words, there’s an incentive not to save in Argentina.

But as the ants taught the grasshopper in Aesop’s famous fable, responsible people save for the future. Many Argentinians do this by saving in USD, which doesn’t have similar inflationary behavior. The Argentinian government needs USD to repay its outstanding bond obligations, and to avoid competing with its population in access to USD, it restricts an individual’s ability to legally obtain American currency.

In Argentina, there are two exchange rates: the legal exchange rate for import/export and the actual exchange rate, i.e. the amount that people in Argentina are willing to pay for USD. The former is around 1 USD to 80 ARS, the latter is 1:130. The Central Bank of Argentina today promulgated a rule saying that individuals are allowed to obtain 200 USD per month at the official exchange rate, but they must pay two taxes, one of 30% and the other of 35%. The restrictions and taxes are in place because otherwise people would buy a lot of money at the official rate and immediately sell for a profit on the unofficial exchanges. So the taxes elevate the exchange rate closer to the unoffical rate and the quantity restrictions ensure there’s enough USD available for the government to pay its debts.

[1] Cepo al dólar: suben a $ 130 la compra para el ahorro y consumos con tarjeta de crédito en el exterior by Martín Bidegaray, published on September 15, 2020 on Clarí