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April 01, 2017


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I can imagine 3 factors:

1. Tax evasion (as opposed to tax avoidance). Changing on the blue market removes any uncomfortable questions as to where all your money (be it US dollars or Argentinian pesos) comes from. This hold true even when the blue rate was actually less than the bank rate at one point in 2016 apparently (see here: http://www.thebubble.com/why-is-argentinas-blue-dollar-so-expensive/)

2. Latent distrust of officialdom - the original blue market originated in 2002 didn't it? After the end of the fixed exchange rate, pesification of deposits, etc? In that case I could see why some Argentines would pay a little more to have US dollars in hand instead of in a bank account and to have these US dollars not known to the authorities in any way.

3. Tourists. As a tourist, it makes more sense for me to get 16 pesos per US dollar than to get 15.6 pesos per US dollar. It increases my spending power in pesos while I'm in the country. (for example see here: https://thebluemarket.wordpress.com/)

In essence, the blue market developed because of the messy default and devaluation of the Argentine peso and after it developed it seemed it retained a usefulness (for tourists and tax evaders) outside of it's original purpose.

I suppose the same hasn't happened in Mexico or Chile because the official exchange rate is market determined already.

Mexico's crisis in 1994-1995 led to a floating exchange rate, but didn't involve the government converting US dollar accounts into Mexican peso accounts if I am not mistaken. So Mexico allowed a market determined exchange rate without making citizens distrustful of actually using the banks when it came to US dollars.

Chile on the other hand had a fixed rate or a fixed band system in place until 1999 (floating within a band from 1974-1979 and 1984-1999, fixed fully 1979-1982 devalued 1982-1984). When Chile floated it in 1999 they also didn't seize citizens US dollar assets in the banks (which is what Argentina essentially did) and so again, most persons have no reason to be distrustful of banks when it comes to US dollars.

So the blue market developed in Argentina out of distrust and then became a useful vehicle for those who needed to evade taxes or wanted more spending power temporarily (tourists). Hard to imagine a black market for US dollars developing in Mexico or Chile solely for tax evaders/criminals and tourists alone. They might be enough to sustain it, but probably not to establish it.

Path dependency! That explanation makes a lot of sense. Thank you!

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