Skip to comments.Argentina: Black Market Grows With Currency
Posted on 05/20/2012 12:35:26 PM PDT by DeaconBenjamin
Along a busy street in the Argentine capital, the man in the brown suit doesn't need to speak above a whisper to sell his goods: "Money change. Money change." Those who want to swap pesos for dollars follow him through a run-down mall to a lingerie store. There, amid bras and pantyhose, he closes deals for greenbacks.
Argentines have increasingly turned to such black market money changers since President Cristina Fernandez sharply restricted purchases of dollars in banks and exchange houses to try to keep hard currency from pouring out of the country.
Argentina has been kept from global capital markets since defaulting on its debt during a financial crisis a decade ago, so Fernandez's government wants to keep dollars in the country to replenish central bank reserves and pay government debts. Argentines, meanwhile, are haunted by nightmares of the crisis, when banks froze deposits and the currency lost value. So they are eager for dollars to stash in vaults or under their mattress. Others send them abroad for safekeeping.
Many economists say the new black market spawned by currency controls could choke back Argentina's economic growth and create even more inflation: Controls make it harder for people to do business and undermine confidence in the peso, causing it to devalue even more quickly. That can create the threat of shortages when people are unwilling to sell goods for a currency they do not trust. The curbs could also encourage Argentines to withdraw dollars from banks.
Under the controls imposed shortly after Fernandez won re-election in October, the country's tax agency, known as the AFIP, must approve all purchases of dollars. The formal exchange rate was 4.47 pesos per dollar on Friday, a slide of about 8.6 percent from where the peso was a year ago.
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Supposedly, too many people were buying the coins to earn credit card points and immediately turning them into the banks rather than circulating them.
Personally, I think that is a crock. They could have easily controlled this by numbering the rolls and blocking your future card transactions if they showed up at banks within 60 days or whatever, or limiting sales to $250 per month or whatever.
But they wanted a kabuki show about how they were saving taxpayer money by discontinuing what they called the circulating dollar coin program.
I believe the Chester Arthur coin is the first minted after the announcement the program was discontinued. So it actually might be minted in small enough numbers to have some collector's value in the future.
Democrat EconoMissed! Since all their predictions ‘missed’!
I don’t understand what you’re saying. YOu tried to get Anthony dollars?
One more reason for the Argie government to try to take back the Falklands and get at their oil reserves. They need the money and the b*tch they have for a President is obviously not at all beyond trying to steal it.
They do so at their peril. Traditionally, countries with a history of currency debasement would peg to the dollar. But, as Argentina learned the hard way, when the dollar soared in the late nineties due to Greenspan's inflation-caused stock bubble, Argentinian raw materials became uncompetitive and the economy tanked.
At the moment, Ecuador (which also depends on exports of raw materials) is probably doing alright because a dropping dollar is making its products attractive. But a Republican presidential victory coupled with a Euro collapse could drive the dollar high enough to make them regret their decision.
These small countries should forget the politically-driven American dollar and go on a gold standard.