USDARS: The Curious Case of the Argentine Peso

USDARS: The Curious Case of the Argentine Peso

The Argentine Peso (ARS) has faced significant devaluation over the past two years, losing 71% of its value against the US Dollar (USD). In September 2019, the USDARS exchange rate was 57.54, but by the end of September 2021, the official rate had risen to approximately 98.5 ARS per USD. This steep decline is largely driven by Argentina’s high inflation rate, which as of August 2021, stood at 51.4% year-over-year. In comparison, the USD’s inflation rate over the past two decades has been just 51.6%, equating to an average annual inflation rate of 2.11%.

Factors Behind the Peso’s Depreciation

Inflation is the most significant contributor to the ARS’s downfall, but the Argentine Central Bank (Banco Central de la República Argentina, BCRA) also plays a key role in manipulating the currency’s value. The BCRA actively buys and sells pesos to stabilize the national currency. Additionally, the government imposes strict regulations to protect the ARS’s value. For instance, exporters are prohibited from transacting in any currency other than the ARS, and individuals or firms must seek special permission to exchange pesos for foreign currencies.

The True Value of the ARS

To gauge the true value of the Argentine Peso, we must look at the black market rate, where the exchange rate is beyond the control of the BCRA. As of September 2021, the black market rate stood at approximately 190 ARS per USD, which is about 52% weaker than the official exchange rate. This suggests that the ARS’s true market value is effectively half that of its official rate.

The June 2021 USDARS Anomaly

On June 30, 2021, a peculiar flash crash in the USDARS pair occurred, where the exchange rate briefly dipped to 91.73 ARS per USD, representing a 4% drop from the opening price. However, the pair quickly recovered and ended the day 0.21% higher. This anomaly coincided with two key economic events for Argentina:

• Debt Agreement with the Paris Club: The Argentine government reached an agreement to defer the repayment of US $2 billion in debt until March 2022. This agreement helped provide Argentina some breathing room as it faced a US $45 billion debt with the IMF.
• Relaxation of Beef Export Restrictions: Argentina also eased its self-imposed ban on beef exports, a crucial economic move given that beef is one of the country’s most important exports. The relaxation of these restrictions, especially with key buyers like China and Israel, helped stabilize trade relations and contributed to the temporary spike in the ARS’s value.

Conclusion

The Argentine Peso’s ongoing struggles against the US Dollar highlight the challenges faced by emerging market currencies amid high inflation and government intervention. While the official exchange rate reflects the BCRA’s actions to stabilize the ARS, the true value of the Peso is significantly weaker when considering the black market rate. The June 2021 flash crash serves as a reminder of the volatility in the Argentine economy, influenced by both international debt agreements and domestic policy changes.