15% surcharge on foreign transactions on Argentine credit cards starting Sep 1
- Thread starter anjuna11
- Start date
prunes61 said:
This is not how credit card transactions work. Visa and MasterCard international do not pay the merchant's bank for the customer's purchase. The issuing bank (i.e. the one whose name is on the credit card) pays the merchant's bank (also called acquiring bank) for the purchase. Visa and MasterCard (Card Associations) merely serve as a clearinghouse and pass the relevant bills back and forth between the two banks. Visa and MasterCard don't touch purchase payment funds, they only collect fees for their network, authorization and processing services.
This is, incidentally, why they neither Visa nor MasterCard care if you actually pay your credit card bill. That's the issuing bank's problem. Visa and MasterCard only care about the volume of transactions going through their networks.
See this link: http://www.ippay.com/index.php?q=merchant_processing_overview
The relevant bit is:
That's a complicated way of saying 'The Issuing Bank pays the Acquiring Bank, and the Acquiring Bank puts money into the merchant's account for the purchase'
Anyway, the reason this actually matters is the flow goes like this (dramatically simplified to take out all the noise with fees going in different directions and just focus on the funds involved in the purchase):
Purchase made buy customer in US$ -> Issuing bank sends Acquiring bank money in US$ -> Issuing bank bills customer for purchase in card's native currency
The currency conversion only comes into play btw. the issuing bank and the cardholder, though of course the issuing bank needs to either tap its dollar reserves to pay the acquiring bank or source the dollars through the capital or foreign exchange markets.
Now, if the bank bills the customer using an exchange rate of 4.60 pesos per dollar, would they 'lose a lot of money' as you suggest? Not if they have a source of dollars at 4.60 pesos per dollar. That should be the Arg central bank, right? Don't tell me the central bank won't even exchange with other banks at the 'official rate'...
In any case, it seems like this 15% surcharge is going to the gov. and not the issuing bank so the issuing bank will continue to bill the customer at the 4.6 rate, just as they have always done, plus collect a 15% surcharge which will be passed straight through to the government.
prunes61 said:
Like the concept above with credit cards, this one is a bit nuanced. Argentine bonds are denominated in dollars, euros or pesos. Period. The government owes the bondholder the value of the bond in the currency it is denominated in, at the time of maturity (along with any interest payments).
If I am holding a 100 USD Argentine bond maturing in 2015 and Argentina devalues the peso to 6.37 pesos per dollar, I really don't care (aside from any credit risk introduced by resulting instability). I'm getting my dollars in 2015 no matter what. Well, we are talking about Argentina so maybe they will just default altogether but they cannot just pay me back in pesos instead. At least they've said they won't do that... http://en.mercopress.com/2012/06/13...-dollars-and-denies-pesification-of-contracts. The way things are going, really anything could happen at this point.
Now, of course the government has to get these dollars from somewhere, if they don't already have enough to make the payment. Would official devaluation make paying back their dollar-denominated debt more expensive? Yes, but not by 'paying the bondholders 6.37 for each dollar of bond debt'. Rather, post-devaluation they would have to buy the dollars at 6.37 and then pay the dollars to the bondholders. This, as you state, is why they want to avoid devaluation and restrict people's access to dollars. They want to keep what dollar reserves they have.
I think it is the case. My point is that the central bank in Arg is having to pay 6.37 pesos for each dollar coming to it via the plastic interchanges. I believe it is absorbing the losses on the exchange spread. It seems to me the surcharge is an attempt to cut it's losses.anjuna11 said:
I don't dispute that the 15% surcharge is going to the central bank of Arg. It is still losing money on the use of the cards. I do not believe the individual card issuing banks are covering the spread. If they had to do so, the cards would have been all cancelled as soon as that spread exceeded their profit on the cards. No one would have Arg bank issued cards usable outside the country.anjuna11 said:
prunes61 said:
Interesting... thought about this a bit more in detail. I don't disagree that they probably are having to pay 6.37 pesos to get more dollars into the central bank.
If that's already the case, what do they have to fear from official devaluation...
Will have to sleep on it.
I dont believe the central bank is paying 6.37 for dollars. All the dollars transferred into the country or changed through banks by tourists etc are being sucked up by the central bank at the official rate of 4.64.
All monies transferred by into the country by little people are forcefully converted to pesos and the central bank pockets the dollars. And the country is now running a large trade surplus as a result of the import restrictions.
I think the 15% surcharge is just a way of screwing more money our of tax dodgers as well as acting as a deterant against people using their cards.
All monies transferred by into the country by little people are forcefully converted to pesos and the central bank pockets the dollars. And the country is now running a large trade surplus as a result of the import restrictions.
I think the 15% surcharge is just a way of screwing more money our of tax dodgers as well as acting as a deterant against people using their cards.
