If the Argentina peso is truly overvalued

[MikeRoss]

Argentina's peso was the worst performing currency in the emerging markets so all of you that kept saying the peso wasn't overvalued last year were wrong. Turns out it was overvalued and probably still is.

The government is pulling out all kinds of tricks to keep it from sinking further.

Milei insiste en sostener al peso, pero a un alto costo

Las autoridades han aumentado a niveles récord las ventas de títulos atados al tipo de cambio oficial, conocidos como dólar linked.

www.bloomberglinea.com

Wow had no idea the Argentine peso was the worst performing currency in emerging markets. Interesting.

 

[CraigM]

Argentina's peso was the worst performing currency in the emerging markets so all of you that kept saying the peso wasn't overvalued last year were wrong. Turns out it was overvalued and probably still is.

I'm not sure that's a fair characterization. The blue dollar was 1500 during my visit in summer 2024 and every forecaster said the peso was still way overvalued and the blue dollar would hit 2000 by year end, but it did the exact opposite and bottomed near 1000. It's only just gotten back to 1500. The peso may be overvalued but short term price movements tell us nothing.

 

[Betsy Ross]

I'm not sure that's a fair characterization. The blue dollar was 1500 during my visit in summer 2024 and every forecaster said the peso was still way overvalued and the blue dollar would hit 2000 by year end, but it did the exact opposite and bottomed near 1000. It's only just gotten back to 1500. The peso may be overvalued but short term price movements tell us nothing.

Agree short term price movements don't tell the entire picture. Some foreigners come and go only a few times a year and while it was 1500 during your stay Craig it could have jumped back down just 2 months later so it can bounce around. My rule of thumb is just exchange over enough as I need it.

 

[enbits]

Agree short term price movements don't tell the entire picture. Some foreigners come and go only a few times a year and while it was 1500 during your stay Craig it could have jumped back down just 2 months later so it can bounce around. My rule of thumb is just exchange over enough as I need it.

On top of that the value of the peso is not being heavily controlled anymore by the government like it previously was with the 'cepo cambiario'. So this idea of the peso being overvalued or undervalued is not valid anymore.

 

[Esposas]

On top of that the value of the peso is not being heavily controlled anymore by the government like it previously was with the 'cepo cambiario'. So this idea of the peso being overvalued or undervalued is not valid anymore.

What would happen to the exchange rate if it just floated freely? Like totally with the corporations also being able to do whatever they want. Seems like there are still a lot of clamps. That doesn't sound free to me.

 

[Finance Prof]

Agree short term price movements don't tell the entire picture. Some foreigners come and go only a few times a year and while it was 1500 during your stay Craig it could have jumped back down just 2 months later so it can bounce around. My rule of thumb is just exchange over enough as I need it.

Good points on the short swings. But that goes to show you the peso is not a stable currency. I would agree depends on when you look at it as it can swing even within a few months. Such is the nature of the peso here.

On top of that the value of the peso is not being heavily controlled anymore by the government like it previously was with the 'cepo cambiario'. So this idea of the peso being overvalued or undervalued is not valid anymore.

It IS being heavily controlled. @Esposas you are correct the cepo cambiario restriction is still in place for companies and many transactions. I applaud Caputo for lifting some currency controls but they need to remove all of the limitations. Otherwise it is not free floating. They have limitations when they can access FX markets or repatriate profits. That isn't free. That is being controlled.

Once that is lifted then we will know what the exchange rate is that is fair. To Craig's point it is anyone's guess.

 

[Wally]

Good points on the short swings. But that goes to show you the peso is not a stable currency. I would agree depends on when you look at it as it can swing even within a few months. Such is the nature of the peso here.


It IS being heavily controlled. @Esposas you are correct the cepo cambiario restriction is still in place for companies and many transactions. I applaud Caputo for lifting some currency controls but they need to remove all of the limitations. Otherwise it is not free floating. They have limitations when they can access FX markets or repatriate profits. That isn't free. That is being controlled.

Once that is lifted then we will know what the exchange rate is that is fair. To Craig's point it is anyone's guess.

The peso is a funny currency. My wife and I joke if you wait long enough you will be right. And then you will be wrong and then you will be right again. Truth is no one knows. Not even the President. He thought it would go to 600:$1 and publicly said that and it did the exact opposite. Many big investment banks think it is overvalued. The truth is that it doesn't matter.

Use Betsy's advice to exchange a little at a time. Or if you are comfortable with the exchange rate then exchange a bigger amount. Many are arbitraging and making high % holding pesos.

 

[ben]

El giro pragmático del BCRA: acumula reservas vía absorción de activos, pero tensiona la curva de pesos

En las primeras dos semanas del año, la autoridad monetaria rompió la inercia con compras por u$s687 millones, utilizando una ingeniería de absorción que evita la emisión neta. ¿Qué efectos tiene?

www.ambito.com

 

[Nasdaq]

El giro pragmático del BCRA: acumula reservas vía absorción de activos, pero tensiona la curva de pesos

En las primeras dos semanas del año, la autoridad monetaria rompió la inercia con compras por u$s687 millones, utilizando una ingeniería de absorción que evita la emisión neta. ¿Qué efectos tiene?

www.ambito.com

The issue is that when the Central Bank buys dollars, it is effectively being financed by companies taking on more debt in dollars. This makes those companies very vulnerable if the exchange rate moves. In my opinion, keeping the dollar artificially cheap discourages private investment and hurts job creation.

It is a good explanation in that Ambito article. It is educational. All of this is complex to understand. The formation of liquid reserves is done at the cost of interest from the bonds issued, which seems like the debt keeps increasing.

 

[Finance Prof]

The problem is there is no transparency with how the Central Bank operates. This is a great post that I agree with.

 

[Good Stuff]

What % of the population are the ones that never get ahead in Argentina? I thought that was the majority of the population?

What % of the population are the ones that never get ahead in Argentina? I thought that was the majority of the population?

I don't know but Dollar App is great and I've started to use it. It has rates above the blue and MEP as well as what credit card company charges. I recommend it.

 

[GraceHill]

I don't know but Dollar App is great and I've started to use it. It has rates above the blue and MEP as well as what credit card company charges. I recommend it.

Can you post a link to this Dollar App you are talking about @Good Stuff ?