What happens if the peso is devalued?

[steveinbsas]

IThe crisis of 2001 was not due to the devaluation per se, but the goverment order to freeze all bank accounts.
good luck henry

Didn't the devaluation actually occur in early 2002 when the peso, which had been "pegged" (by decree of the government) at one to one was allowed to "float" freely in the international currency market?

And did or did not the government then convert dollar accounts into pesos and then convert those amounts into bonds? Were the bonds ever redeemable?

I did some reading on the subject several years ago, but lost all the links when my OS crashed.

 

[LAtoBA]

And indeed, is that likely to happen? What might trigger it? Would it happen before the election?

I'm interested to know what would be the social / economic impact of the peso being devalued.

Is it likely to be a re-run of 2002? If the peso became worth 1/2 of what it is currently against the US dollar i.e. from ~4:1 to 8:1 - is that conceptually different to 2002 when it went from 1:1 to 3:1?

Obviously it's going to take a lot more pesos to buy things, but do things also increase in face-value price? Do things become more expensive not only because you need 8 pesos today rather than the 4 you needed yesterday, but because they are also charging 10 pesos (either for the hell of it, or because of some impact of the devaluation)?

If someone can explain it in simple terms, or rather, give their opinion in simple terms, I'd appreciate it!

BABB

In simple terms the peso is actually undervalued (also known as the real exchange rate, RER) and has been this way since about 2002 due to manipulation. Although the degree of that undervaluation has eroded due to inflation.

So the problem in Argentina is that the peso is actually overly depreciated. In other words if Argentina needed to depreciate their currency even further, a strategy to spur exports and ultimately economic growth, they would not be able to do so.

What happened in 1999-2002 was a direct result of Argentina trying to artificially keep the peso pegged to the American dollar 1:1. The macro fundamentals of their economy did not justify such an exchange rate. In order to "defend" it they needed to use and ultimately depleted their currency reserves. So in other words, no, you're not likely to see a repeat of what happened then because technically the currency is "floating" and no longer artificially pegged. And without distortion you would see the argentine peso appreciate against the American dollar, not depreciate.

Sorry for the tangent......I like this stuff.

 

[SaraSara]

The dollar purchasing power is now back to pre-devaluation levels. Just the same as in the times of the "uno a uno".

We'll see what happens after the elections - those of us who are still here, I mean.

 

[LAtoBA]

Also just wanted to add, while I don't see a repeat of 2002 in the short-term, i.e before the next presidential elections, the fundamentals of the economy are not good. Inflation is still a big problem as is the problem for capital flight (investors taking their money and moving it elsewhere), a deteriorating budget balance, a bloated public sector, restricted access to international credit markets, and Argentina's insistence on import restrictions, which ultimately hurts exports through retaliation.

Anything in the long-run, i.e after the elections, is anyone's guess!

 

[AkBill]

When is the election going to be??

 

[davonz]

IMHO i would say the peso is over valued. Take a basket of everyday items from the supermarket. Convert the cost back to dollars, and then find out how much they cost in $ in the states or your home country. For me most items are 25% or more (much more) expensive. There is no reason for Arg to be more expensive then belgium or NZ or AU or US. If it was like china, booming economy, booming export sector then you would expect things to be more expensive. Or if the average wage was high. But i dont think ARG is any of these things.

 

[davonz]

When is the election going to be??

Oct or Nov 2011 i think.

 

[dennisr]

Use the "Big Mac Index" to get an indication if a currency is over/under valued. People have used it for years. The latest and greatest Big Mac Index shows the AR peso is under valued by 5%. Has to be more reliable than the INDEC numbers
http://www.economist.com/node/16646178?story_id=16646178

 

[French jurist]

 

[HenryNisental]

To have a clear dollar/peso exchange rate what one has to do is to divide all pesos in existance,by the known dollar reserves: $/U$S
Once you do that you will get a clear picture. I think this is going to happen AFTER the Nov 2011 elections, the goverment is trying to pass the impopular (devaluation) buck to the next elected candidate. And if they get reelected, they figure out a new set of lies, excuses, foreign culprits, escape goats, seedy plotters,etc, to whom they could re-direct public anger. Welcome to Argentina!!!