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What is Argentina’s “blue dollar” and why is its price so volatile?

Blue dollar, parallel dollar, unofficial dollar. If you’ve been following economic news from Argentina, or if you’re planning a trip to the South American country, you’ve no doubt come across some of these phrases. And they all mean the same thing. they mark the dollar that is sold outside the official circle; you could say it’s the parallel market, but in Argentina’s case it’s the street dollar.

Blue dollar, unfortunately famous in Argentina’s recent history

The blue dollar, the fact-checking website Chequeado explains, has always existed to the extent that people who wanted to make purchases and sales outside of the official market. However, during certain periods of Argentina’s recent history, when citizens’ ability to purchase dollars was limited by law, it became more important.

The first was in 2011, when then-president Cristina Fernández de Kirchner created the so-called cepo cambiario. In 2019, six days after assuming the presidency, Mauricio Macri abolished border controls. But four years later he imposed them again. That was the second milestone.

Under the current government of Alberto Fernández, the ministry “added a 30% tax (Imposto para uma Argentina Inclusiva e Solidária, PAIS) and a 35% withholding tax to the income tax account, in addition to a series of bans on buying dollars.” for different situations than banks,” Chequeado explains.

Due to these controls, which are the limits of the amount of dollars that people can buy in the official market, Argentine citizens who want to get dollars turn to the parallel market, where the price is less favorable than the official one under these conditions. (the dollar is more expensive), but there are no restrictions.

Chorus of Voices on Florida Street Boardwalk

“Change, change, change.” When you walk down the famous Florida street promenade in Buenos Aires, you hear these words over and over again. After a while there is a chorus of voices from different places making the same offer to sell their dollars.

For tourists arriving in the country, the opposite is the case: the blue dollar is the price that suits them best, because if they choose it, they will now get more pesos for each dollar.

Blue Dollar Highs and Lows

How can the blue dollar fluctuate? The answer, say analysts consulted CNN:takes into account a context in which at least three factors are combined.

One of them is high inflation, which has accumulated 36.2% so far, according to Indec (Argentina’s National Institute of Statistics) and is on track to be one of the highest in the region.

A second factor is the strong issuance of Argentine pesos to finance Treasury spending and bond repayments. Fundación Libertad y Progreso economist Eugenio Mari addressed this point in his analysis of the foreign exchange market.

According to him, the fluctuations respond to two factors. One is “growing mistrust of the peso and the government’s move toward macroeconomic balances that reduce risk,” while the other is that “the monetary trouble fest that the central bank was holding that flooded the peso market is logically tapering off.” its value.” In other words, supply and demand.

It should also be noted for importers who have to buy foreign currency in the informal market, which increases the pressure on the dollar price, he explains. CNN: Radio Argentina.

The facade of the Central Bank of Argentina, in Buenos Aires / 12/07/2021 REUTERS/Agustin Markaryan

“Prices are often a state of mind”

After the dismissal of Martin Guzman from the Ministry of Economy, the price of the blue dollar rose by about 9%. These fluctuations show the psychological factor that affects the price, according to the analysis that was done in Armenia CNN: by finance specialist Claudio Zuchovici.

“The dollar has no technical value,” he said, and “prices are often a state of mind.” He explained with an example far from dollars. How much does the ship cost? Say, for example, $10,000. But how much is a boat worth next to the Titanic when it sinks? Definitely a lot more. This shows that value is relative and fear plays a role.

“Uncertain is worse than bad. When you have that degree of uncertainty, you try to prevent yourself as best as possible,” he said after the exchange of Ministers of the Economy portfolio, which was taken over by Silvia Batakis. This uncertainty can mean holding stocks instead of selling them in the case of companies and sectors, and trying to save dollars if you’re an employee.

Fernando Losada, chief emerging markets economist at Oppenheimer in New York, recently said: CNN: that the depreciation of the Argentine peso “shows that there is a lack of confidence” in the government’s economic strategy, so “the population is fleeing the peso to seek refuge in what the population believes offers them better value.

*With reporting by Ignacio Grimaldi, Juan Pablo Varsky, Nacho Girón and Emiliano Jimenez, CNN.

This content was originally created in English.

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