The Argentine Peso has lost 71% of its value against the US Dollar in the past two years. At the end of September 2019, the US Dollar / Argentine Peso (USDARS) closed at a trading price of 57.54. As we close in on the back of September 2021, the official exchange rate is now approximately 98.5 Argentine Peso per USD.
Several factors have contributed to the Peso devaluation. Argentina's inflation rate is no doubt the primary factor. As of August 2021, consumer prices in the country have jumped 51.4% on a yearly basis. In comparison, the USD has inflated 51.6% over the past twenty years (representing a 2.11% average annual inflation rate).
The tight, almost indecision-less rise of the weekly candles are a suspicious feature of the USDARS chart. It suggests that maybe unnatural market forces are controlling the ARS's depreciation. It just so happens, the Central Bank of Argentina, The Banco Central de la República Argentina does manipulate the value of the ARS, directly buying and selling Peso's on the open market to help stabilise the national currency.
The Argentinian Government also has a hand in protecting the value of the ARS. For instance, it is illegal for exporters to conduct transactions in a currency other than the ARS. Similarly, reminiscent of 1970's style foreign exchange, special permission must be sought to sell pesos for foreign currency by individuals and firms in the country.
To figure this out, we can consult the black market value of the Argentine Peso, the unofficial value that is beyond the control of the Banco Central de la República Argentina. As of September 2021, one USD is traded for ~190 ARS on the black market, representing a true value that is ~52% weaker than the official exchange rate. Effectively, the Argentines peso’s true market-value is half that of the official rate.
A peculiar anomaly appears in the USDARS chart. It stands in stark contrast to the indecision-less candles of the many weeks before and after. A better view of this anomaly is seen in the daily charts as this anomaly occurred on one day.
On June 30, 2021, A flash crash in the USDARS saw the pair briefly trade at a low of 91.73, equalling a -4% drop from the open price of the USD. However, the pair eventually settled 0.21% higher by the end of the trading day. The Argentine Peso was only granted a short spell of good fortune.
The crash in the USDARS happened around the time of two pivotal economic events for the ARS. The first is the agreement the Argentine Government reached with the Paris Club to defer repayment of US $2 billion debt until March 2022. The deferment shored up Argentina to tackle a US $45 billion debt with a larger creditor, the IMF. The second major economic event concerning Argentina is the ending of a self-imposed full-ban on beef exports, which happens to be the country's most significant export. While a partial ban continues, the Government relaxed restrictions to China and Israel, close to the time of the crash, to maintain an amicable trade relationship with two of its largest beef buyers.
Please note, BlackBull Markets does not offer the Argentine Peso as a tradable instrument. As indicated in the article, the currency's 'official' exchange rate is controlled by the Banco Central de la República Argentina. Thus, the Argentine Peso is too high a risk of a tradable instrument. A South American currency that BlackBull Markets does offer as a tradable instrument, is the Mexican Peso.
Over the past year, the Argentinian Peso has last 20.3% against the US dollar. A combination of spiraling government debt, political unrest, and the Coronavirus have seen Argentina fall further into recession.
The deprecation of the Argentinian Peso came when the government defaulted on their debt for the 9th time – three times being in this century alone. The country officially defaulted on their debt on May 22nd, when it missed a $503 Million interest payment. Argentina's President, Alberto Fernandez, said they wouldn't be able to resume payments to the IMF for another five years. Currently, Argentina has a debt burden of $323 Billion at the end of 2019, which is equivalent to 88% of the country's GDP.
Alongside this, political instability and the Coronavirus have to lead the Argentinian Peso lower. There are concerns that hyperinflation will ensue in Argentina, similar to what has happened in Venezuela.
The poster child for Hyperinflation, Venezuela's fall came swift as a boom in oil prices influenced government policy. Prices from 2010-2014 were in the $100 range for Brent Crude, and Venezuela decided to fund their social systems to combat poverty and inequality. However, prices in 2015 plummeted to $50, and the Venezuelan could not pay for their social services. Furthermore, similar to how the Australia dollar is vaguely correlated to the commodities it exports, the Venezuelan Bolivar plummeted as oil exports accounted for 90% of the government's revenues.
To pay for their social welfare system, the President at the time, Nicolas Madura, decided that the solution was to print more money, increasing the supply of the Bolovair in the market. It was not the solution. This caused rapid inflation in the country. In attempts to reduce this, Madura decided to make it more difficult to exchange the Bolovair into the US. However, in the Black Market, it US dollar was still being freely traded. By 2018, the exchange rate for the 1 USD was 250,000 Bolivares. But by the end of the year, the government decided to devalue the official rate to the black market rate, sending the official value of the Bolivar down 95%. Inflation reached a peak of 130,000% in 2018.
Currently, inflation in Argentina sits at around 53.8%. While Argentina does not have the same problem as Venezuela (dependent on a sole export), they have seen an increase in selling for the Argentinian Peso as institutional investors sell and devalue the country's bonds. Currently, the Peso is "free-floating," however, the government has imposed strict restrictions and steep taxes on officially exchanging the currency. However, just like Venezuela, there is a black market for the US dollar, which trades at a steep discount compared to the official rate. Currently, the official exchange rate is 72 Pesos for 1 USD Dollar. However, the exchange rate on the Black Market is around 120 pesos for 1 US Dollar. There may be a possibility that the Argentinian government devalues the currency, like what the Venezuelan government did.
Pre 2002, the Argentine government was battling inflation problems and social and political unrest, like what is currently happening in Argentina. However, back then, a Peg was implemented to the US dollar. Once they abandoned the Peg in 2002, the value of the US dollar against the Peso skyrocketed 400%. The nation has been battling with inflation since the 1970's, where the government decided to increase the money supply by printing money, similar to Venezuela. The average inflation between 1975 and 1990 became 300%.
So, we can draw similarities between what happened in Venezuela and what is currently happening to Argentina. If we see the Argentinian government devalue the currency to actual market value, we may see the USD/ARS skyrocket and inflation go rampant in Argentina.