Five Signs That Argentines Are Losing Their Faith in the Peso

(Bloomberg) -- No matter how hard the government makes it and no matter how much incomes decline, by hook or by crook, Argentines keep buying more dollars.

Greenback purchases measured by the central bank rose for a third month in June, reaching the highest since October. Far more people are buying on the black market.

The purchases are just one more sign of the inexorable rise in pressure on the central bank's exchange rate policy. Argentines are losing faith in the ability of authorities to maintain a slow, gradual weakening of the peso against the dollar. Many expect a sharp devaluation from the current level of 72 pesos to the dollar.

Here are five indicators that show the pressure on the peso.

Dollar Purchases

Savers bought $597m in June via the official market, the most since October when the central bank imposed a limit of $200 on monthly greenback purchases per person. Authorities added a 30% tax on those purchases in December. Despite that, the demand for dollars continues to rise.

Black-Market Peso

The growing demand for dollars is also clear in the black market. There, the rate known locally as the ‘blue' jumped to 136 per dollar from 130 in the past week, putting it 90% above the spot prices, according to people with direct knowledge of the matter, who asked not to be named because they can't speak publicly.

People have been pushed to use the black market since May when the government put regulatory hurdles on other parallel exchanges, known as the blue-chip swap rate and the “MEP” dollar. But there's little it can do to regulate the activity that happens in “caves”, as the black-market exchange houses are known.

Even the blue-chip swap rate weakened 7.8% last week to 125.01 to the dollar.

Futures Demand

The appetite for dollars is also clear in the futures market. Argentina's central bank had a larger negative position in dollar futures in June than at any time in the past four years as it struggles to control the peso.

The futures reflect bets by investors that the local currency will slump against the dollar, with the central bank committed to covering the difference in pesos between the exchange rate and the contracted exchange rate. The negative balance stood at $4.2 billion at the end of June, up from $2.9 billion in May.

Dollar-Linked Bonds

Argentine companies issued a record $596 million of dollar-linked bonds domestically in the past two months. While about a third of the bonds now pay negative yields, local investors are lapping them up, willing to accept losses in dollar terms because the notes' peso payouts are adjusted to account for swings in the foreign-exchange rate.

“The local market is valuing the need for a hedge against depreciation more than the credit risk of the issuer,” said Alejandro Haro, head of sales and private banking for Banco Comafi in Buenos Aires. “As long as it's dollar linked, it's in demand.”

Dollarized Stocks

As expectations for a devaluation rise, Argentines are looking for ways to hedge the exchange rate. One common method is Cedears, or local certificate deposits of stocks that trade abroad. Demand for the certificates jumped in May after the central bank restricted access to the blue-chip swap rate. Traded volume is now three times higher than in January.

“Retail investors have migrated towards Cedears,” said Federico Desprats, head of wealth management at Intervalores. “It's the way Argentines are finding to save money in the medium term.”

©2020 Bloomberg L.P.