Blue dollar in freefall - why?

[Rich One]

y
it's exactly the opposite - lower dollar means stronger peso, and the stronger the local currency is, the less competitive the exports of this country are

Perhaps so but exports and imports deal on the Official Dollar which has experienced only a Small change..?

 

[Bajo_cero2]

Perhaps so but exports and imports deal on the Official Dollar which has experienced only a Small change..?

But local salaries are in pesos.

 

[jblaze5779]

Looks like the good faith streak is coming to an end. back to 162 today....

 

[Ries]

My question is- where are all the physical dollars?
Since nobody is vacationing, they are not being carried to Uruguay or Disneyworld and spent.
Since the economy is really slow, they are not being used to pay for imports on the world market.
We are told the reason the dollar is so expensive is because of demand- but what happens, when all those demanders actually buy their dollars?
Is it all in Safe Deposit boxes, wall safes, and under mattresses?
It doesnt seem like any real estate is selling- so its not being used to buy apartments.

Its kind of funny- doesnt the government actually spend dollars to buy pesos, to keep the peso price down?
Not that it works.
So they are injecting even more physical dollars into the economy?

Are people actually paying for dollar denominated government bonds by spending dollars?

the whole thing is just mysterious and confusing, if you ask me.

 

[Dougie]

That's a good question Ries. Many Argentines are pulling out their physical dollars from the banks recently too.

I remember reading an article about the US Federal Reserve scrutinizing the physical dollars that Banco Piano was sending to the US because many of them were fire and water damaged. The head of the bank said the it was simply because people would store them in between walls and pipes would burst, roofs would leak, etc. The Fed seemed to think that it was because of money laundering, that cash used for illicit activities often gets damaged along it's journey. I don't know what ever happened with that though.

Its kind of funny- doesnt the government actually spend dollars to buy pesos, to keep the peso price down?
Not that it works.
So they are injecting even more physical dollars into the economy?

When the BCRA does these interventions, physical dollars aren't being released into the real economy. As far as I know they mostly do it through auctions where each participant is a registered bank or financial agent and there are usually regulations around what those dollars can then be used for. For example, maybe a financial agent of Arcos Dorados is authorized to buy dolalrs so that they can pay their franchising fees to McDonalds USA. They don't want it to go to just unmitigated capital flight. The dollars may not even physically be in Argentina to start with, the transaction may be from their account at the NY FED. They can manipulate it through bond trading too.

During the whole debt battle with Elliot Capital Management, Elliot tried to seize their NY Fed account and the courts rules that foreign banks accounts were immune from seizure.

Disclaimer: This is a somewhat educated guess...I have some familiarity with the topic but not a central bank expert.

 

[Ries]

If most of the dollars are virtual, then why would they raid a cueva?
The amount of dollars being exchanged at cuevas is tiny compared to digital transfers to buy goods abroad by big companies.
And, those dollars (the ones at cuevas) stay in country, meaning they may affect the exchange rate, but not the actual amount of dollars available to the government to pay dollar denominated debt, and how, exactly, does raiding a cueva raise the value of the peso?

 

[Dougie]

More speculation on my part

I don't know if it's true that a lot of the cueva dollars stay in the country. The most recent cueva that they raided in microcentro the government claimed was linked to narcos in Peru and Bolivia. In that case, some of the dollars could be smuggled out of the country to pay the distributors in those countries. The military has made a lot of stops near the border of Paraguay and Bolivia recently of trucks filled with physical cash

I'm saying most of the dollars are virtual when the BCRA sells their reserves off. I think most of those big companies probably buy dollars from the central bank either through auctions or they are permitted to exchange because they are using it for profit remittances or capital goods. There is also the contado con liqui that they use too, which is virtual.

You're right that for the official rates the market is much larger than the blue market. The blue market which is smaller, I'd assume is influenced by physical cash. If they raid cuevas and threaten them, it will theoretically make it harder for people to exchange money on the black market thus raise the value of the peso. The government cares about the blue rate because if there is a large gap between the blue and the official it can cause distortions in the economy.

 

[Rich One]

The important Cuevas handle some cash but also important direct dollar transfers to overseas accounts against cash pesos .
The lines downtown to buy US$200 are a small part of the business..IMHO

 

[Iznogud]

IMO, the raiding of the puniest number of Cuevas every now and then is purely cosmetic and serves only to give the regular (lower middle class) joe a conversation topic thanks to a disproportionate news media coverage.

We are as particular as we are also predictable.
Wouldn't surprise me at all if further down the road we would come to learn that those who took the Blue up to $200 then dumped a ton of greenbacks only to buy them back again once it hit the $150-160 mark. Wouldn't be the first or the last time.

Most if not all of you are familiar enough with Cuevas and are well aware that those raids are as relevant as raiding a Verduleria in terms of our economy.

Iz

 

[Dougie]

IMO, the raiding of the puniest number of Cuevas every now and then is purely cosmetic and serves only to give the regular (lower middle class) joe a conversation topic thanks to a disproportionate news media coverage.

We are as particular as we are also predictable.
Wouldn't surprise me at all if further down the road we would come to learn that those who took the Blue up to $200 then dumped a ton of greenbacks only to buy them back again once it hit the $150-160 mark. Wouldn't be the first or the last time.

Most if not all of you are familiar enough with Cuevas and are well aware that those raids are as relevant as raiding a Verduleria in terms of our economy.

Iz

It all comes down to if there is demand for something the government can't stop it. The cueva raids are the equivalent of the police showing off some kilos of drugs that they confiscated, and people they arrested. As long as there is a demand, the sellers will find a way.