UPDATE: The Argentine Trade Balance missed surplus expectations by the most in 3 years (and 2nd most on record).
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As those who follow Zero Hedge [8]on twitter know, we have recently shown a keen interest in the collapse of the Argentine currency reserves - most recently at $29.4 billion - which have been declining at a steady pace of $100 million per day over the past week, as the central bank desperately struggles to keep its currency stable. Actually, make that struggled. Here is what we said just yesterday:
The decline continues: ARGENTINA'S RESERVES FELL $80M TODAY TO $29.4B: CENTRAL BANK
— zerohedge (@zerohedge) January 22, 2014 [9]
As of today it is not just the collapse in the Latin American country's reserves, but its entire currency, when this morning we woke to learn that the Argentina Peso (with the accurate identifier ARS), had its biggest one day collapse since the 2002 financial crisis, after the central bank stopped intervening in currency markets. The reason: precisely to offset the countdown we had started several days back, namely "an effort to preserve foreign exchange reserves that have fallen by almost a third over the last year" as FT reported [10].
As the chart below shows, the official exchange rate cratered by over 17% when the USDARS soared from 6.8 to somewhere north of 8.
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But as most readers know, just like in Venezuela, where the official exchange rate is anywhere between 6.40 and 11, and the unofficial is 78.85 [12], so in Argentina the real transactions occur on the black market, where they track the so-called Dolar Blue, which as of this writing just hit an all time high of 12.90 and rising fast.
What happens next? Nothing good. "The risk of capital flight is rising by the minute. This will be very hard to control,” wrote Dirk Willer, strategist at Citigroup, adding that liquidity had "largely disappeared" with a risk of Venezuela-style capital controls. Ah Venezuela - that socialist paradise with a soaring stock market... even if food or toilet paper are about to become a thing of the past.
Some other perspectives via the FT [10]:
Siobhan Morden of Jeffries said: “This is not an administration that respects or understands market pressure. They have been in the early stages of currency crisis since December, and yet their main strategy has been to pay off arrears and try to attract foreign direct investment.”
Luis Secco, Buenos Aires economist, said "It is hard to figure out what is the logic behind the authourities decision to let the peso so abruptly, without any other accompanying macroeconomic policy. It’s possible that the authorities would rather see a strong rise in the dollar, than lose, again, a large quantity of reserves."
“It is a potentially dangerous situation...not least because it could give the impression that the authorities don’t have a very clear idea of how to manage the situation.”
Ricardo Delgado, Buenos Aires economist, said on Wednesday: “The government faces a dilemma. It wants to stop reserves from falling. But that means less imports and thus lower growth, as the economy is very dependent on imports. So the question is: do you want more growth, or higher foreign reserves.“
However, with the "currency run" having once again begun, absent a wholesale bailout and/or backstop by "solvent" central banks of Argentina, a country which has hardly been on good speaking terms with the western central banks, there is little that the nation can do.
So for all those morbidly curious individuals who are curious what the slow-motion train wrecked death of yet another currency will look like, below is a link to the DolarBlue website, aka the front row seats where the true level of the Argentina currency can be seen in real time. If and when this number takes off parabolically, that's when the panic really begins - first in Argentina, then elsewhere.
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Of course, it's not just Argentina - most of the world's emerging market FX is getting hammered year-to-date...
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