Adeptly managed by the central bank and the government, the Argentine peso has been plunging in perfect form, an activity it is very, very good at. And so on Thursday, it plunged 4.1% on the black market, hitting 14 ARS/USD for the first time. With the official rate at 8.39 ARS/USD, the gap between the two soared to a record of 5.61 pesos. A sign that any remaining trace-amounts of confidence in the peso were evaporating.
It was the steepest plunge since January 24, when the central bank devalued the peso by 15%.
‘Expect the government to take action to bring this rate down – fast,’ wrote Bianca Fernet, stilettos-on-the-ground American economist in Buenos Aires and contributor to Wolf Street. This ‘Argentine monetary policy,’ as she explained in The Bubble, would include:
Forcing state-owned agencies to sell dollar bonds locally Closing the cambios and other currency dealers for a few days Raising interbank lending rates, forcing banks to sell assets locally. On Friday, the peso recovered a smidgen, and the reported ‘blue dollar’ rate dipped below 14 ARS/USD, after the central bank had reportedly blown $10 million of its foreign exchange reserves to prop it up. But it desperately needs those reserves – now below $29 billion – to service its foreign-currency debt, part of which it defaulted on once again on July 31.
‘They are reporting a lower rate than the real rate; reporting a rate above 14 is evidently not permitted,’ Bianca told me, perhaps tongue in cheek because that’s the only way to take Argentina. Then she added, ‘The brokers are trading at 14.35 right now.’
On Monday, brokers were selling the dollar at 14.1 ARS/USD, illegal and un-permitted as that may be.
This post was published at Wolf Street on August 25, 2014
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