in Argentina’s Black Market, USD Rocketed 60,000%

• In Argentina’s black market, the US dollar recently climbed past 1,000 pesos for the first time.
• The price of “blue dollars” surged almost 60,000% since Argentina scrapped its currency peg in 2002.
• The greenback allows Argentines to protect their earnings as the peso keeps losing its value.

For Argentina’s economy and markets, chaos is a way of life.

For decades, the nation has been roiled by hyperinflation, sky-high interest rates, a growing mountain of debt, a string of sovereign defaults, and a cratering exchange rate. It’s been in recession for a third of the time since 1950, according to a recent report by Spain’s Santander Group that cited World Bank data.

Just last week, the country’s central bank jacked up its benchmark interest rate to a stunning 133% (yes, you read that right), stepping up a seemingly losing battle against consumer-price increases that came in close to 140% last month.

Rampant inflation has ravaged Argentina’s currency over the years, wiping out much of its value against the dollar and ruining its appeal to consumers. The greenback has surged almost 100% this year to about 350 pesos in the interbank market, with even triple-digit interest rates failing to prop up the local tender.

Rise of the “blue dollar”

But that’s just the official side of the story.

In Argentina’s bustling black market for foreign currencies, the dollar is far dearer. US currency bills are much sought after by residents as a means to protect their savings, which risk losing value by the day if held in the hapless local currency. Argentines have stashed away billions of cash dollars in their cupboards and under mattresses, according to some estimates.

The coveted bucks from the back alleys of Buenos Aires have their own price, even their own name: dólar blue, or the “blue dollar.”

And they are always in demand, no matter the cost.

Up 60,000% and going strong

The dollar’s unofficial exchange rate smashed above 1,000 pesos for the first time last week, to hit levels almost three times as high as the official rate. That’s a gain of almost 200% this year.

But it isn’t just a 2023 story. It’s a theme that goes back just over two decades, when Argentina abandoned its exchange-rate peg versus the dollar, leading to a sharp devaluation of the peso.

Since that seismic market event, dollar rates in Argentina’s black market have skyrocketed almost 60,000%, according to Insider calculations based figures from bluedollar.net, which provides data on the country’s informal exchange rates.

From a level of about 1.7 pesos at the start of 2002, the figure was 1,010 pesos last week – with some reports putting the blue dollar’s peak as high as 1,050.

Hidden dollar hoards

Argentines had hoarded about $246 billion in undeclared cash, overseas bank accounts, and safe-deposit boxes at the end of 2022, the American libertarian think tank Cato Institute said in a blog post last month, citing figures from Argentina’s statistics agency. Local media also have reported similar figures.

That’s almost 12 times the country’s official foreign-currency reserves, and equivalent to about 40% of GDP. 

Last year, there were even reports of crowds raiding a local dump for bucks, following rumors that a cupboard containing a blue-dollar stash may have ended up there.

The Argentine public’s dollar lust starkly contrasts with some recent moves from the country’s government that suggested a desire to rely less on the US currency. The nation has been using the Chinese yuan to repay some international debt, and has held talks with Brazil to weigh the possibility of a common currency.

Still, the economy’s dollar fixation is so strong leading presidential candidate Javier Milei has openly endorsed adopting the greenback as Argentina’s official tender, saying the peso was worth even less than excrement.

Manuel Cortina/SOPA/Getty Images

More trouble ahead

There seems to be no end in sight to the troubles facing the Argentine economy and its currency.

The International Monetary Fund expects the economy to shrink 2.5% this year, and some forecasters are even more pessimistic.

“Inflation would reach 200% in 2023 and will remain high during the first six months of 2024, given that corrections in utilities and FX rate are expected from December 2023,” analysts at the Spanish bank BBVA said in a research note this month.

“We maintain the 3.5% GDP decline forecast for 2023 and deepen the contraction for 2024 to 2.5%,” they wrote, forecasting the peso’s official exchange rate to plunge a further 80% by year-end to 630 per dollar.

That would almost certainly mean the blue dollar surging to new highs.