Blue dollar: ABC to understand a phenomenon that defines the Argentine exchange market

Why did the dollar rise so much in Argentina?

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(CNN Spanish) --

Blue dollar, parallel dollar, informal dollar.

If you follow the economic news of Argentina —or if you are planning a trip to the South American country—, without a doubt you have come across some of these expressions.

And they all mean the same thing: they designate the greenback that is traded outside the formal circuit: it could be said that it is the black market, but in the Argentine case it is the street dollar.

The blue dollar, sadly famous in the recent history of Argentina

The blue dollar, explains the Chequeado site, has always existed to the extent that there were people who wanted to make purchase and sale operations outside the formal market.

However, in some periods of Argentina's recent history, in which the ability of citizens to purchase dollars was legally restricted, it became more important.

The first was 2011, when the then president Cristina Fernández de Kirchner established the so-called exchange stocks.

In 2019, six days after assuming the Presidency, Mauricio Macri lifted the stocks.

But four years later he imposed it again.

That was a second milestone.

In the current government, headed by Alberto Fernández, the Ministry "added a 30% tax (Tax for an Inclusive and Solidarity Argentina, PAIS) and a withholding of 35% on account of income tax, in addition to a series of inhibitions to buy dollars from the bank due to different situations", explains Chequeado.

Due to the traps, which are precisely the limits to the amount of dollars that people can acquire in the official market, Argentine citizens who want to get greenbacks go to the black market, where the price in these circumstances is less advantageous than the official (the dollar is more expensive), but there are no restrictions.

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The choir in the pedestrian Florida

"Change, change, change."

When you walk along the famous pedestrian street Florida, in the city of Buenos Aires, you hear those words endlessly.

After a while, it seems like a choir of voices that from different spaces are making you the same offer: that you sell them your dollars.

And it is that for tourists who arrive in the country the opposite situation happens: the blue dollar is the price that suits them best because if they opt for it they will now get more pesos for each of the greenbacks.

The ups and downs of the blue dollar

How can the blue dollar swing?

The answer, say the analysts consulted by CNN Radio Argentina, will always be given in a context in which at least three factors are combined.

One of them is high inflation, which so far this year has accumulated 36.2%, according to INDEC, and is on its way to being one of the highest in the region.

A second factor is the heavy issuance of pesos to finance Treasury spending and the redemption of bonds.

Eugenio Marí, an economist at the Fundación Libertad y Progreso, referred to this point in an analysis of the foreign exchange market.

According to him, the variations respond to two factors.

One is "a growing distrust in the peso and the government's ability to move towards macroeconomic balances that reduce risk" and the other is a "monetary issue festival that the Central Bank has been carrying out, which has flooded the peso market, logically it makes its value fall".

In other words, supply and demand.

It is also necessary to mention the measures to cut access to formal dollars for importers, who are forced to buy foreign currency in the informal market, which increases the pressure on the price of that dollar, explains CNN Radio Argentina.

"Prices are often a state of mind"

After the resignation of Martín Guzmán from the Ministry of Economy, the price of the blue dollar shot up about 9%.

This variation shows, according to the analysis made on CNN by the finance specialist Claudio Zuchovicki, the psychological factor that impacts the price.

"The dollar has no technical value," he said, and "prices are often a state of mind."

She explained it with an example far removed from the greenback.

How much is a boat worth?

Say, for example, $10,000.

But what is a boat worth next to the Titanic when she is sinking?

Undoubtedly much more.

This shows that value is relative and fear plays a role.

"The uncertain is worse than the bad. When you have that level of uncertainty, you seek to cover yourself as best you can," he said after the change of ministers of the Economy portfolio, which Silvia Batakis assumed.

This "as you can" can mean holding stock rather than selling it in the case of businesses and industries and trying to save dollars if you are an employee.

Fernando Losada, chief economist for emerging markets at Oppenheimer in New York, recently told CNN that the depreciation of the Argentine peso precisely "indicates that there is no confidence" in the government's economic strategy, so "the population flees from the pesos to take refuge on whatever else the population thinks offers them a better store of value.

With information from Ignacio Grimaldi, Juan Pablo Varsky, Nacho Girón and Emiliano Giménez from CNN.