fetch rover
Well-known member
1,500? Oh my. We were there just a few months ago and it was around 1000. We feel fortunate that when we lived in Argentina the exchange rate was fairly stable. That is far from the case now!
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Blue dollar hits a new historical record! 1,500 to $1 USD
- Thread starter Betsy Ross
- Start date
Honestly this is something out of the Kirchner playbook. I like President Milei but totally against this sort of thing. You can read many economists are totally against this.
www.clarin.com
Desconcierto y dudas entre los economistas por el anuncio de Milei sobre el dólar financiero: de "kirchneristas" a "medidas salvadoras"
La medida fue anunciada por el Presidente en una entrevista y aclarada por Luis Caputo y Pablo Quirno en las redes.Confusión en los análisis económicos.
www.clarin.com
I think this is a situation where the more the government tries to do, the more trust it loses. The more trust it loses, the more volatile the exchange rate becomes. The more volatile the currency is the more people will look for stability, and in this case towards the dollar. Hence pushing the value of the dollar up and consequently the value of the peso down.It's all complicated @FuturoBA. Even here most locals don't understand everything the government and Central Bank are doing. Here is an article today. The government keeps saying, "nothing has changed" but then things change. I don't know how the markets will take this on Monday. This article is saying the central bank will buy dollars at 900 and sells at 1400. That sounds like it's too good to be true. And anything that sounds too good to be true usually is.
Desde el lunes: tras la turbulencia del dólar, ¿cómo funciona la nueva medida que anunció Milei?
El Presidente anunció que buscará eliminar la última canilla de emisión de pesos con la intención de frenar la volatilidad del tipo de cambio y contener además los precioswww.lanacion.com.ar
And you're right @Betsy Ross nobody really knows what's going on. It reality, it may not be any policies that's affecting the exchange rate, but the uncertainty and anxiety itself making the market act irrational or not.
Betsy Ross
Well-known member
Correct. Others made good points about when the government says one thing they mean another. The government in Argentina never admits they are scared until the day they have to admit they are scared. Also, it can be confusing because big announcements like this are done when the President is not even in Argentina and Caputo is releasing the news on X which can be confusing. You can see many economists are confused. In one of the articles someone posted Milei does speak about a possible 3,000 peso exchange rate if it wasn't for Caputo. All of these things can be confusing for citizens.
A lot of noise and people are not sophisticated. They don't know what any of this means. If economists are confused you can bet locals don't have a chance of understanding. All they hear is the peso would be at 3,000 to $1 US and that is the message they hear.
We'll see how this plays out but I will hold on to dollars as always and buy pesos as needed. Contrary to President Milei and Caputo stating that the Argentine peso is going to be the demanded currency. No thanks.
Avocado
Well-known member
Now maybe some of you will see how crazy this administration is. Instead of just accepting the peso is over valued and people don't trust the government's plan and it is not working they do crazy thing like this. No one know consequence for this manipulation.
Milei cause big recession, job losses, worse situation with peso, no dollarization, no getting rid of CEPO, record high poverty level, still elevated inflation level. He never in Argentina and always traveling outside of Argentina.
Now some of you people see what I talk about.
Milei cause big recession, job losses, worse situation with peso, no dollarization, no getting rid of CEPO, record high poverty level, still elevated inflation level. He never in Argentina and always traveling outside of Argentina.
Now some of you people see what I talk about.
MikeRoss
Well-known member
It seems like many economists are against this idea. Sure it might work but there might be some unintended consequences.
Emisión cero: nueva fase del experimento Milei y una economía que entra en terreno desconocido
Aún con una recesión palpable y sin brotes verdes, el Gobierno se juega a sepultar la inflación con el riesgo (alto) de sepultar también el nivel de actividad.
eleconomista.com.ar
Scottishgaucho
Well-known member
To be fair we had to suffer all of that for years before Milei came along to sort out the mess. Give him a chance.
Pink Panther
Well-known member
I don't think most people are blaming Milei for all the problems Argentina is having. Of course not all the blame on him. Just not a good idea to fly around the world accepting awards and then claiming he is probably going to win the Nobel prize. Makes him look silly and stupid when the exchange rate is blowing up and he has to manipulate markets.
Digital Nomad
Well-known member
Looks like Caputo's plan worked at least for now. Blue dollar dropped down to 1,400 today. It dropped further this morning but seems like it's coming back up.
www.lanacion.com.ar
Dólar hoy: tras las medidas del Gobierno, baja el blue y los financieros caen más de $70
El paralelo cotiza a $1450, es decir, $50 menos frente al cierre del viernes; tanto el MEP como el CCL retroceden hasta los $1350, luego de que el equipo económico adelantara que intervendrá el mercado
www.lanacion.com.ar
Ron
Active member
Take the opportunity to exchange some dollars; it looks like the happy days of the dollar at $1500 are coming to an end.
batimes.com.ar
Argentina to sell dollars in parallel FX market to shore up peso
Central Bank will sell US dollars in the country’s parallel foreign exchange markets starting Monday, says Economy Minister Luis Caputo.
batimes.com.ar
Betsy Ross
Well-known member
It took a big dive this morning. Government hasn't done this sort of thing before. I wouldn't count what happens in only one day. You have to see what happens over the long term. I still would only recommend buying pesos as needed to pay monthly bills. I'm not buying more pesos than I need. I bought another month worth of pesos on Friday for August bills but will just wait and see how this plays out.Take the opportunity to exchange some dollars; it looks like the happy days of the dollar at $1500 are coming to an end.
Argentina to sell dollars in parallel FX market to shore up peso
Central Bank will sell US dollars in the country’s parallel foreign exchange markets starting Monday, says Economy Minister Luis Caputo.
It's like investing in blue chip vs penny stocks. Hold onto the dollar because in the long run it will win out.
RN in BA
Well-known member
It is all very complicated. I read several articles and all sounds complex. It sounds like the government isn't the only one that can do this. I feel sorry with the locals that have to deal with all of this. I wonder why the government didn't do this from day 1? My feeling is that it solves one thing but breaks something else.
www.infobae.com
Emisión cero: cómo funcionará el mecanismo con el que el Gobierno busca bajar al dólar
El BCRA esterilizará a través de la venta de divisas en el mercado de valores la emisión de pesos que efectúa al comprar dólares en el mercado de cambios
www.infobae.com
Finance Prof
Well-known member
Correct. Might be a solution for the gap but country risk has now gone up. Real life game of Whack a Mole.It is all very complicated. I read several articles and all sounds complex. It sounds like the government isn't the only one that can do this. I feel sorry with the locals that have to deal with all of this. I wonder why the government didn't do this from day 1? My feeling is that it solves one thing but breaks something else.
Emisión cero: cómo funcionará el mecanismo con el que el Gobierno busca bajar al dólar
El BCRA esterilizará a través de la venta de divisas en el mercado de valores la emisión de pesos que efectúa al comprar dólares en el mercado de cambios
Tras los anuncios de Caputo, bajaron los dólares financieros, pero subió el riesgo país y cayeron los bonos | TN
El mercado reaccionó este lunes a las medidas del Gobierno sobre la nueva política monetaria. El CCL y el MEP se ubicaron cerca de los $1300; mientras que el blue retrocedió $85 y cerró a $1415.
This seems to be the case. It still sounds like no one knows long-term what will happen to the peso. All the articles I am reading on it sound like it might help blue dollar but cause another problem. Time will tell.
Dólar: por qué bajan los paralelos y cuáles son los riesgos del plan que arrancó hoy
Con su paquete de medidas, el Gobierno busca intervenir en el mercado para bajar la brecha cambiaria; mientras, cae el precio de los bonos por las dudas sobre la acumulación de reservas
www.lanacion.com.ar
TonyTigre
Well-known member
I would compare this to a company doing a stock buyback program using profits / cash flow generated from operations. That would be different from doing a stock buyback by issuing more debt which is more like what the previous administration did.
One thing to keep in mind about a stock buyback program is that timing and frequency of the purchases are not set in stone. Whether the program is effective in the long term depends on the fundamentals of the company. In this case, if Argentina is not issuing new debts to support this program, but only using a portion of their surpluses then I think it's a wise use of those funds.
Keep in mind that their actions have the effect of helping to keep inflation under control, which is important for the people most hurt by the recession and government spending cuts. So in effect, they are using the savings from reduced subsidies to help the poor. This is similar to how the local governments have a big increase in tax revenue collection from higher utility bills, and then part of those funds are then used to help those locals who need the help the most. So in effect, part of the subsidies still exist except it's moved from the federal level to the local level, and the subsidies are more targeted to those who really need it.
Limited and strategic intervention using budget surpluses should not be confused with previous administrations that kept borrowing / printing more money to basically bribe the voters in an unsustainable way.
As signs of Argentina start growing again this quarter, and especially next quarter, the level of intervention would be greatly reduced and perhaps no longer even necessary.
The truth is that nothing the administration have done so is new. It might be new to Argentina, but not new in this world. The consequences of their policies are also not new, therefore their mitigation plans are also not new. Of course the same plans don't always work due to various reasons, but there are also existing plans to deal with different outcomes. However, I think there are still plenty of reasons to be hopeful that this administration is on the right track.
One thing to keep in mind about a stock buyback program is that timing and frequency of the purchases are not set in stone. Whether the program is effective in the long term depends on the fundamentals of the company. In this case, if Argentina is not issuing new debts to support this program, but only using a portion of their surpluses then I think it's a wise use of those funds.
Keep in mind that their actions have the effect of helping to keep inflation under control, which is important for the people most hurt by the recession and government spending cuts. So in effect, they are using the savings from reduced subsidies to help the poor. This is similar to how the local governments have a big increase in tax revenue collection from higher utility bills, and then part of those funds are then used to help those locals who need the help the most. So in effect, part of the subsidies still exist except it's moved from the federal level to the local level, and the subsidies are more targeted to those who really need it.
Limited and strategic intervention using budget surpluses should not be confused with previous administrations that kept borrowing / printing more money to basically bribe the voters in an unsustainable way.
As signs of Argentina start growing again this quarter, and especially next quarter, the level of intervention would be greatly reduced and perhaps no longer even necessary.
The truth is that nothing the administration have done so is new. It might be new to Argentina, but not new in this world. The consequences of their policies are also not new, therefore their mitigation plans are also not new. Of course the same plans don't always work due to various reasons, but there are also existing plans to deal with different outcomes. However, I think there are still plenty of reasons to be hopeful that this administration is on the right track.
Flamingo
Well-known member
That is a good explanation. Still, many economists are saying this isn't a good idea so the question then is do you trust this administration or those economists? Some of these are the same economists that said CFK and her administration and Alberto too were doing the wrong things.
Probably is moot whether it's a good idea or not. It seems like the only thing they can do. This government really doesn't have as many options as they think. They say they aren't scared but if not they are ignorant.
Milei and his team lack a political party, allies, deputies, and actual power. Despite his grandiose rhetoric, he can't achieve much. Those holding votes in Congress aren't interested in his agenda, so none of it will come to pass. It's straightforward. Although he has managed to issue a few executive orders, they fall far short of his platform's scope.
Digital Nomad
Well-known member
@TonyTigre thanks for this Cliff Notes version. But isn't it still very important to build up Central Bank reserves? All these exchange rates seem convoluted and nuts. I hope this works out.
Finance Prof
Well-known member
Despite the government's austerity measures, Argentina still needs a lot of money to function and to manage its pre-existing public debt of about 450 Billion dollars.
Financially, the government relies on an inherited financing model that includes retentions and capital controls like the PAIS tax. This allows the government to collect revenue instantly during transactions, rather than relying solely on direct taxes as in many other countries. While removing these controls might boost exports and financial inflows, transitioning to a new model would create a significant operating deficit during the changeover. Any government would need substantial financial reserves or credit lines to cover its obligations during this period.
Politically, a floating exchange rate would have been more painful and unpopular compared to the controlled devaluation already experienced. This is especially true early in an administration when market confidence is untested. The government still spends heavily on energy subsidies and social welfare, balancing austerity with populism to prevent social unrest while managing its massive public debt without defaulting and causing panic.
The latest financial moves appear to be an attempt to manage these challenges and ensure an orderly transition. However, economic distortions are likely to continue. While adjusting the CCL and MEP rates might help, as long as controls like the CEPO and PAIS tax restrict access to cheaper dollars, the informal "blue" dollar and the higher prices it brings are unlikely to disappear. This creates problems for those earning in pesos but facing costs tied to higher dollar rates unless they can both pay and be paid in the same dollar, which remains difficult to achieve.
Financially, the government relies on an inherited financing model that includes retentions and capital controls like the PAIS tax. This allows the government to collect revenue instantly during transactions, rather than relying solely on direct taxes as in many other countries. While removing these controls might boost exports and financial inflows, transitioning to a new model would create a significant operating deficit during the changeover. Any government would need substantial financial reserves or credit lines to cover its obligations during this period.
Politically, a floating exchange rate would have been more painful and unpopular compared to the controlled devaluation already experienced. This is especially true early in an administration when market confidence is untested. The government still spends heavily on energy subsidies and social welfare, balancing austerity with populism to prevent social unrest while managing its massive public debt without defaulting and causing panic.
The latest financial moves appear to be an attempt to manage these challenges and ensure an orderly transition. However, economic distortions are likely to continue. While adjusting the CCL and MEP rates might help, as long as controls like the CEPO and PAIS tax restrict access to cheaper dollars, the informal "blue" dollar and the higher prices it brings are unlikely to disappear. This creates problems for those earning in pesos but facing costs tied to higher dollar rates unless they can both pay and be paid in the same dollar, which remains difficult to achieve.
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