Argentina: Record Demand for Dollars to Protect Against Hyperinflation

Argentina Record Demand for Dollars to Protect Against Hyperinflation

Just another financial and economic crisis in Argentina, currently one of the least reliable on the planet in terms of credit, is pushing investors to buy up United States dollars in expectations of new strong depreciation of the local currency.

So far this year the Argentine peso has lost around 20 percent, with the exchange rate USDARS climbing to a record high of 8.5150. On the black market, however, the exchange rate is almost 75 percent less than the official price. Since the beginning of 2014 the Argentines have already purchased 2 billion dollars, while foreign exchange reserves of Casa Rosada fell again to just over 27.3 billion dollars.

The Argentine investors can freely buy dollars at the official price, but are restrained to keep them in the bank for at least one year, otherwise it is applied to a further tax of 20 percent. In fact, it seems that this extra tax is not driving away anyone, since official data shows that 90 percent of savers preferred to withdraw their dollars.

Although the valuation on the black market (with the change of just under 15) is maximal, savers are nonetheless able to buy 70 percent more pesos than the official exchange rate. Thanks to this mechanism, the Argentines cover losses resulting from the constant rise in inflation that now fluctuates steadily at a rate higher than 40 percent on an annual basis.

Despite the controls on the movement of capital announced by the government of Buenos Aires, this practice continues to move forward, triggering a dangerous vicious circle. Among other things, the monetary authorities of Argentina have now lost much of their credibility, after the resignation of Juan Carlos Fabrega as governor of the central bank and the subsequent replacement by Alejandro Vanoli, closer to the questionable positions of the government led by Cristina Fernandez de Kirchner.

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