The currency situation in Argentina has led me to be thankful for certain things about my home. Canada has never had a military dictatorship, financial collapse, or pseudo-communist government. It also has one of the world’s most stable economies, currencies, and governments. Stability is taken for granted. The exact opposite is true here in Argentina.
In Argentina, however, chaos is taken for granted. When I talk with Argentines over their currency and fiscal problems, I regularly hear “there’s a collapse every ten years.” Which, in general, has been the truth. What has this created? It’s created a culture of distrust in the local currency, the Argentine Peso, and a normality in selling every peso you can for USD or real estate.
This has created the current currency situation in Argentina, which is one of illegality. In mid 2011 the Kirchner government banned foreign currency exchange, essentially putting a big “Closed” sign on the country in regards to international business. This policy created an approximate 20% drop in real estate prices in Buenos Aires in the middle to upper class neighbourhoods, and pushed currency exchange underground.
Porteños (the people of Buenos Aires,) still exchange their pesos for dollars, but now they have to do it in “cuevos” or caves. These are the underground exchange houses that have popped up all over the country out of demand and necessity. In any crisis, there are opportunities that arise. These cuevos, have made for a profitable black market economy to satisfy the necessity of foreign exchange.
This new law, along with Argentina’s hyperinflation, has also made some very interesting circumstances possible. For example, in any country that is functioning properly, a new car bought today is worth much less in one year than today. This isn’t the case here. People invest in cars, because the hyperinflation is higher than the depreciation of a vehicle.
Another interesting circumstance arising from the currency situation in Argentina is the tendency to put every possible expenditure on an Argentine credit card, especially overseas purchases. You see, the “official” rate for the peso is approximately 4.7, and the black market rate is around 6.4. This spread is widening. While the US dollar is possibly depreciating at about 4%/yr, the peso is depreciating at about 30%. So Argentines, to get around the terrible situation their government has put them in, pay for everything by credit card, pay only minimums, keep their savings in USD, and a year later they’ve paid maybe 20% in interest, but the peso is worth 30% less in purchasing power. If you take into account a widening gap in the real vs black market exchange, you’ve saved over 10% on all your purchases in a year.
The strange part of this whole currency situation in Argentina, is that all of this has been made necessary. Just to escape the hyperinflation and pseudo-Communist practices of the current Argentine government, this craziness has become common practice. Does this sound like a properly functioning economy? No, but sadly this is the reality of today’s Argentina. It’s been just over eleven years since the last collapse. Is the next one imminent? Without change, I believe so.