I just got back from Argentina. Great country. I could get a huge filet mignon for $19 in a very nice part of town. With free champagne.
The reason I could take advantage of cheap prices in Argentina was that I bought pesos at the “blue market” rate, 7.8 per dollar at retail rather than the official rate of 5.35. (That steak, for example, would have been $28 instead of $19.) As much as a bargain as that was, however, it would have been ever better in May 2013, when the blue market rate touched 10.5. ($14 steaks!) Since then, however, the peso has strengthened enormously.
But why has the peso strengthened? Beyond Brics suggests that the reason is that the Argentine government has cracked down on the market. The crackdown is real: I should not write about how I accessed the market, but I will say that it was a great deal shadier than the last time I was there in May 2012. (And let me say that the crackdown is not starting from an easygoing level: back then I saw a Brazilian couple arrested by police with dogs because they mistakenly thought they were dollar dealers!)
But is the crackdown why the peso has strengthened on the blue market? When law enforcement cracks down on illegal drug markets, a rise in the price of illegal drugs is taken as a sign of success. After all, the point of cracking down on illegal drug markets is to make illegal drugs harder to get and thus more expensive.
So ... if the Argentine government were succeeding in combating the illegal dollar market, shouldn’t the price of illegal dollars be going up rather than down?
"So ... if the Argentine government were succeeding in combating the illegal dollar market, shouldn’t the price of illegal dollars be going up rather than down?" I can't see any flaw in your logic. Could there be some kind of differential enforcement going on, where the government puts more pressure on "blue market" dealers that are closer to a true market value? Though I don't see too much gain in it....
Posted by: Bernard Guerrero | July 03, 2013 at 03:13 PM
beyondbrics is an insanely neoliberal blog. It's weird it's as blatant as it is, compared how good Alphaville is. I read it carefully, and mostly as a news aggregator. It's just not a surprise beyondbrics would say what you're saying it did, despite not quite making sense.
Given the emerging market's general loss of currency value, exemplified by the Brasil Real losses, I also think it's a really good thing to think about why the Argentine peso is strengthening. My bet is that it's a sign of weakening in the consumer markets...i.e., people have less pesos in general and must spend on daily things in the local retail sector, while larger durable goods/high value items that can be imported so much cheaper with dollars have to be delayed to some later point.
Posted by: shah8 | July 03, 2013 at 05:39 PM
On the crackdown question, could the reasoning be that the potential of getting caught is now really deterring a lot more people, leading to less demand for illegal dollars?
Posted by: Ted | July 05, 2013 at 11:46 PM