No reprieve: informal dollar soars and the ‘brecha’ exceeds 100%

The gap between the official and the informal dollar exchange rates reached 111% today

The gap between the informal dollar and the official dollar exchange rate reached 111% today. In the past 24 hours, the informal dollar increased from AR$ 442 to AR$ 465 — a 5% jump — amid weeks of great economic tension due to record inflation rates and the negative impact of the drought. Heightened political uncertainty in an election year is also generating anxiety. 

Dollar scarcity is a recurring problem in the Argentine economy. In 2019, the government of former President Mauricio Macri implemented restrictions on the official foreign exchange market in the midst of a run that threatened to leave the Central Bank without dollars. President Alberto Fernández maintained those restrictions when he took office later that year. For this reason, accessing the dollars that the country seeks to accumulate from its commercial activity is difficult and is managed by the government on the basis of certain priorities (such as the import of raw materials for industries or the payment of Argentine companies’ debt in dollars). 

Since these restrictions are tough but at the same time do not discourage the demand for hard currency, economic agents and citizens have different strategies to buy dollars. One of them is the dollars obtained by buying and selling financial assets (known as “blue-chip swap rate” and MEP dollar) and another is the informal circuit, also called “blue dollar”. 

The brecha is the “gap” between the official dollar exchange rate and the financial or informal dollars. The gap is important because many economic agents use the value of financial dollars as parameters to set their costs and prices.

The problem with the brecha is that it generates incentives that aggravate the situation. The agents that have dollars and must liquidate them in the official market receive half of the pesos that they would get in the informal market or at the value of the financial dollars, so they do not sell their dollars. And those who have to buy products in dollars want to accelerate purchases because the dollar is perceived as “cheap”. Thus, supply is dwindling and demand is growing.

The government has no tools to control the price of the informal dollar because it is illegal, which is why it tends to be the most volatile exchange rate.

Today, agricultural producers sold their produce for the equivalent of US$ 105.8 million, according to official sources. However, the Central Bank had to pay US$ 180 million for fuel imports, so it lost reserves during the day.

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