Posted Apr 8, 2013 by Martin Armstrong
The Argentine Government has made it its policy to overvalue the Argentinean Peso (to hide the fact that people are buying dollars and smuggling them out of the country in any way they can as a result of the brain-dead policies they’ve been pursuing for about a decade now). Of course this has led to a “black market” rising where the USD is indeed much higher than the “official rate”. The free market USD is often referred to as Blue Dollar, and is about 60-70% higher than the Government-suppressed “market”.
Never mind the fact that there is a guaranteed trade there if you can actually purchase dollars at the official rate. Good luck with that, there all manner of controls being set up to ensure that is not done (although obviously a handful of well connected individuals must have found ways to get around this).
Now, the story gets interesting because apparently, the neighboring country of Uruguay, obviously for political reasons, has made it its policy to ALSO overvalue the Argentinean peso, effectively creating 3 different exchange rates: Arg official rate; blue dollar rate; and Uruguayan rate, which curiously enough, is about halfway between official and blue. You have to get past all the controls.
Anyhow, this reminds me of when the US decided to overvalue silver, which of course led to the country being flooded with the metal coming from Europe, which eventually led to the US’ default and JP Morgan’s bailout.
Indeed the same thing is happening in Uruguay: The country is being flooded with Argentinean pesos as people are simply buying them in Arg, and selling them in UY (there are a lot of controls but the Arg Gov’t doesn’t mind if people bring dollars INTO the country, it’s getting them out that’s a problem).
So the overvaluation is causing people across the border to shop in Argentina, not to mention the fact that the dollars keep flowing to that country as a result of the arbitrage.
This won’t end well! Now they Gov’t is saying there appears to be a shortage of USD! Well duh?! Stop overvaluing that worthless piece of paper the Argentinians refer to as “currency” for Heaven’s sake!
And now to make matters worse, they’re offering a “solution” to the problem they CREATED: Capital controls! Apparently it is no longer “cool”, says the UY Gov’t, to cross over to Argentina to buy cheaper stuff, and pretty soon they’re going to start tracking people who bring Argentinean currency to swap it for dollars and take them away. Just let that currency float!