Bloomberg - Argentina Takes Steps to Dollarize and Holds Key Rate

Argentina Takes Steps to Dollarize and Holds Key Rate

But I don't understand. Argentina can't really dollarize can they? I thought they didn't have enough money. Everyone I ask someone I get a different answer.

Jenn said:

But I don't understand. Argentina can't really dollarize can they? I thought they didn't have enough money. Everyone I ask someone I get a different answer.

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Very very tricky. This isn't a true dollarization. This is just allowing prices to be displayed in dollars and some people have US dollar bank accounts here so they can pay with their debit cards on local accounts. No need to convert or worry about white/blue/CCL/MEP etc. So this does not mess with the Central Bank reserves.

This doesn't affect tourists or foreigners with cards from their banks back home.

Jenn said:

But I don't understand. Argentina can't really dollarize can they? I thought they didn't have enough money. Everyone I ask someone I get a different answer.

Click to expand...

This is just a bit of marketing. Has nothing to really do with a formal dolliarzation. Argentina does not and probably won't have the reserves any time soon to ever truly dollarize like Milei said he would do before the elections.

This just allows people to use whatever they want. More and more local banks have USD accounts and some of the financial firms too like Cocos or Uala.

Saw this today.

The government has announced a change to commercial law allowing prices to be legally shown in both USD (and/ or any foreign currency) and ARS for any goods and services. The prices shown must be the final price to be paid by the consumer at the till.

Until now, it has been illegal to show prices in USD (or foreign currency) for most goods and services in a B2C context, except a few things like real estate.

Additionally from 28 February, the BRCA announced that consumers will have the option to pay via Argentine debit cards in USD or ARS at the moment of the electronic transaction (avoiding any possible FX fees, taxes, or differences arising from the existing need to convert to ARS) allowing them to chose which of their accounts are debited.

As has happened in other countries that followed such bi-monetary practices as a tool to help get inflation/runaway prices under control, I suspect that hard currency prices should begin to stabilize and even start to reduce slightly now that consumers will have a more objective measure to keep track of, making it more difficult for sellers to get away with price speculation.

So it sounds like sellers now have the flexibility to set different prices for their goods or services in USD and ARS. Since sellers will directly receive the full amount in USD—either as cash or deposited into their USD merchant account (if paid via a USD card transaction)—they can incentivize sales in one currency over the other. For instance, a seller can offer more attractive prices in USD than ARS, or vice versa, depending on their strategy.

Banks and payment platforms are required to apply the same commissions and fees to USD transactions as they do to ARS transactions. This ensures there is no financial disadvantage for sellers to accept payments in USD on terms as favorable as those for ARS. Additionally, banks are obligated to promptly open USD accounts for businesses that request them, enabling these businesses to receive payments directly in USD.

Businesses (excluding banks and payment platforms) retain the freedom to choose whether to operate in USD, any other foreign currency, or exclusively in ARS, depending on their preferences.

And the money that came into the banking system via the recent tax amenesty program, can have these funds freely used for USD debit card transactions at any time without penalties, taxes, or the need to wait one year for penalty-free access. The blanqueo has significantly increased the amount of USD in the Argentine financial system, bringing in $22 Billion.

This is all very very confusing. Why would someone pay in dollars? I guess if the store sets a better exchange rate? Poor consumers. This sounds complicated. I guess people will calculate if they can get a better deal going to a cueva vs. just paying with dollars in their bank accounts?

Jenn said:

This is all very very confusing. Why would someone pay in dollars? I guess if the store sets a better exchange rate? Poor consumers. This sounds complicated. I guess people will calculate if they can get a better deal going to a cueva vs. just paying with dollars in their bank accounts?

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Sellers are free to set prices based on what they think their product is worth and what they think customers are willing to pay for it. Buyers can choose which price they prefer to pay. For example:

• If a restaurant owner wants to charge dollars, they might price their empanada at $5 USD per empanada and 7,000 ARS per empanada, with no connection to exchange rates.
• If a restaurant owner prefers pesos, they might set their empanada at 5,000 ARS per empanada and $8 USD per empanada, again independent of exchange rates.
• If the owner values their empanada in dollars but doesn’t mind receiving pesos, they might price it at $5 USD or 6,500 ARS (adjusting the ARS price based on the official or parallel exchange rates).
• Similarly, if the owner values the empanada in pesos but doesn’t mind dollars, they might price it at 6,000 ARS or $5USD using the same logic.

Sellers can mix and match pricing strategies however they like. The law doesn’t control or regulate price differences or currency conversions—it only requires that the final amount displayed on the price tag is the amount the customer pays. This means you might see very different pricing policies from one shop to another, as businesses will adjust to compete with each other over time.

Pink Panther said:

Sellers are free to set prices based on what they think their product is worth and what they think customers are willing to pay for it. Buyers can choose which price they prefer to pay. For example:

• If a restaurant owner wants to charge dollars, they might price their empanada at $5 USD per empanada and 7,000 ARS per empanada, with no connection to exchange rates.
• If a restaurant owner prefers pesos, they might set their empanada at 5,000 ARS per empanada and $8 USD per empanada, again independent of exchange rates.
• If the owner values their empanada in dollars but doesn’t mind receiving pesos, they might price it at $5 USD or 6,500 ARS (adjusting the ARS price based on the official or parallel exchange rates).
• Similarly, if the owner values the empanada in pesos but doesn’t mind dollars, they might price it at 6,000 ARS or $5USD using the same logic.

Sellers can mix and match pricing strategies however they like. The law doesn’t control or regulate price differences or currency conversions—it only requires that the final amount displayed on the price tag is the amount the customer pays. This means you might see very different pricing policies from one shop to another, as businesses will adjust to compete with each other over time.

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Thanks! This was a great explanation and I think I understand it now. It still sounds very confusing. It seems like it would just be easier to just either dollarize completely which it sounds like they don't have the money to do. Or just operate with a normal exchange rate like any other country in the world when I travel. This sounds complicated.

What about for tourists? Will they be able to choose to be charged in dollars or pesos?

Jenn said:

Thanks! This was a great explanation and I think I understand it now. It still sounds very confusing. It seems like it would just be easier to just either dollarize completely which it sounds like they don't have the money to do. Or just operate with a normal exchange rate like any other country in the world when I travel. This sounds complicated.

What about for tourists? Will they be able to choose to be charged in dollars or pesos?

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You are right. Argentina is not a normal country. Desperate to try to keep things complicated instead of just floating their currency. Eventually it will have to devaluate.