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Thursday, May 2, 2013

How Much Is The Argentinian Peso Worth? That Depends

While last week saw the economy minister of Argentina fumble, stumble, and finally crumble over the difficult question of what Argentinian inflation rates were (11% official versus 26% estimated), it seems the nation has another Schrodinger-like problem. While officially the exchange rate is around 5.15 Pesos to the US Dollar, in reality the black market exchange rate (or so-called Blue-Dollar purchase rate) is more like 9.6 Pesos to the US Dollar…

An 86% devaluation priced into the local economy’s desire to NOT hold Pesos and demand for USD liquidity. Oh, and as a side note as the S&P 500 pushes towards 1,600, think of the wealth creation… Argentina’s stock market, one of the best performing in the world, is up 72% since November – that must be good, right?

Wealth Creation… We suspect this nominal index is merely reflecting the rise in the black market exchange rate of the desparate nation…
Simply put, when you bring your hard-earned US Dollars into Argentina and exchange them like any good American at the airport – you will get 5.15 (or so) Pesos for each bill… but should you hold onto that all important greenback and choose to use it for exchange in the country, you will receive 9.6 Peso’s worth of value… as the real economy has discounted the value of its own currency…

Green is the ‘official’ exchange rate, blue is the black market exchange rate

As the President of City Bank exclaimed,

“The exchange rate can not be maintained at the levels they are now,” with a parallel dollar that seems to have no ceiling , and with inflation according to the index released by Congress, around 25% annually, the only solution is devaluation. And with regard the country’s president, “Kirchner has to take care of her mistakes”

via How Much Is The Argentinian Peso Worth? That Depends | Zero Hedge.