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Surge in Argentina's dollar black market suggests another devaluation is on its way

FXStreet (London) - The unofficial Argentine exchange rate is close to highs against the official exchange rate as the South American economy looks increasingly fragile. The “dollar blue” rate is currently estimated at USD12.4, compared with the official USD/ARS rate at ARS8.4664.

The Argentine government attempted to ease the pressure on its foreign currency reserves earlier this year with a heavy revaluation of the nominal peso rate as it felt the squeeze servicing its dollar debts. However, the move simply widened the gap between the official peso rate and the dollar blue rate – the black market rate at which people buy dollars in exchange for their rapidly-depreciating pesos. And that gap has continued to widen through 2014.

Minister dismisses risk

Argentina’s economic minister Axel Kicillof has been quick to dismiss the gap between the official and the blue dollar rate as being the result of short-termist foreign “vultures” trying to destabilise the economy. The comments are linked to the attempts by US hedge funds to hold the Argentine government to its debt obligations and to Elliott Management’s seizure of the navy vessel ARA Libertad earlier this year. There are also rumours that Argentina’s president Cristina Fernández de Kirchner now flies by charter jet rather than government-owned private jet for fear that the plane would be impounded by bond holders if landed in the US.

Kicillof has also been quick to dismiss the size of the dollar blue economy. However, the Council on Hemispheric Affairs estimates that in excess of USD10 million is traded on the black market every day.

Since 1970, Argentina has now used five different currencies, enacted 14 devaluations of its currency, and seen wide-scale bank defaults in 1990 and 2001. And the surge in demand for dollars by Argentina’s citizens indicates that they fear that another devaluation may be imminent.

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