In the streets of Buenos Aires, dollar fever is fading. The Argentine peso is recovering against the greenback, but experts fear that this respite will only be temporary. Find out what's behind this turnaround in the foreign exchange market.
In the crowded streets of the Argentine capital, street money changers continue to hail passersby with their cries of “Dollars, change, dollars!” “. However, in recent weeks, the tide seems to have turned on the foreign exchange market in Buenos Aires. The frantic race for the greenback is stalling, leaving a little respite for the battered Argentine peso.
Traditionally, Argentines have limited confidence in their national currency. Decades of galloping inflation and repeated crises have ingrained the habit of hoarding dollars whenever possible, distrusting bank deposits in pesos. This reflex has fueled a vast black dollar market, where the famous “arbolitos” (small trees) wave their green bundles in the faces of passers-by.
The dollar is losing its luster
But recently, even the most seasoned of unofficial currency traders are struggling to sell their stocks of dollars. Oscar, who officiates not far from the presidential palace, does not hide his nostalgia for more prosperous times:
Just a year ago, I made around forty transactions in six hours. Now it takes me about ten hours to do four, at most.
he confides, annoyed.
Several factors explain this turnaround. On the one hand, the collapse of purchasing power linked to government austerity measures has reduced the saving capacity of many citizens to zero. Poverty is exploding, now affecting more than one in two Argentinians.
On the other hand, a tax amnesty launched in July to repatriate undeclared dollars allowed the Central Bank to amass more than $20 billion in reserves. Enough to temporarily quench the market's thirst for greenbacks.
Central Bank reserves at their highest
As a result, the informal exchange rate of the dollar is getting closer to its official rate, around 1,000 pesos, while it had reached a record of 1,500 pesos on the black market in July. A breath of fresh air for the peso, which is regaining color after a descent into hell.
But this improvement could only be short-lived, experts warn. If the effects of the tax amnesty fade and if negotiations with the IMF do not succeed, the specter of a new collapse of the peso will resurface.
The question of the exchange rate is not fundamentally resolved.
points out Hernan Letcher, economist at the Argentine Center for Political Economy (CEPA).
A risk for exports
The appreciation of the peso also poses a risk to Argentine exports, particularly to Brazil, its largest trading partner. The Brazilian real has fallen against the dollar in recent days, with investors worried about the economic health of the Latin American giant.
Meanwhile, in the streets of Buenos Aires, currency traders are hanging on. Sales of dollars are not weakening, driven by Argentines seeking to convert their meager savings to pay their bills.
Almost all of those selling are very elderly people who are getting rid of their savings to pay the bills. They scour the entire city center looking for the best rate.
underlines Fabiana, manager of a clandestine exchange office.
A fragile balance, suspended from the next ups and downs of the Argentine economy and the moods of currency traders. The latest round of a long-term duel between the peso and the king dollar.
