Argentina Legitimizes Black-Market Currency With New Dollar-Backed CDs

Tyler Durden's picture

Just over a month ago we noted that the black-market (blue-dollar) currency that existed in hyper-inflation-prone Argentina had reached epic proportions of disconnect from the official rate of exchange to the USD. It seems the government did not like this and so has decided to take control of this 'shadow economy' by creating a new payment method. As the FT reports, As of today, Argentines can pay with so-called Cedins (Certificates of Deposit for Investment), which unlike the peso, can be (legally) swapped for much-coveted dollars. Originally designed for real-estate purchases, they are set to be accepted for anything as long as buyer and seller agree. Argentina has a history of resorting to 'funny money' and Cedins will "operate like a national currency... [since] the peso has stooped serving as a savings instrument." While officials dismiss the blue-dollar market, this move clearly signifies there recognition of an un-official exchange dramatically devalued from the the official rates.

 

Via The FT,

Argentina gets a new payment method on Monday that, unlike the peso, can be swapped for much coveted dollars in a country where greenbacks are like gold.

 

Though designed for real estate purchases, officials say the new Certificate of Deposit for Investment, or Cedin, could also be used to buy anything from washing machines to holidays, provided buyer and seller agree.

 

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The Cedin is different: the cash-strapped government, which introduced a strict clamp on legal access to dollars in October 2011 but has still seen central bank reserves decline at an alarming rate, is offering the bonds to people in exchange for dollars that have been held abroad or under the mattress without being declared.

 

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Idesa, a consultancy, says Cedins “will operate like a national currency, convertible into dollars . . . The government is forced to seek alternatives because the Argentine peso has stopped serving as a savings instrument and has many limitations as a transaction instrument”.

 

Argentines have a long-held love affair with the dollar, stemming from decades of painful experience of high or runaway inflation, currency crashes and economic turbulence...

 

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The official dollar rate is now some 5.39 pesos while the parallel rate – dubbed the “blue rate” – has eased to around 8.04 pesos.

 

The government dismisses the blue dollar as a tiny, illegal and illiquid market that has little relevance for most of the 40m population, but the “blue” has become a closely watched economic variable beside the overvalued peso.

 

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Eduardo Levy Yeyati, head of Elypsis, a consultancy, who sees the scheme as a “Venezuela-style” attempt to intervene in the parallel dollar market.

 

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“People who want dollars will want dollars, not Cedins,” he says. “This is obviously a backwards step.”