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 ?

 

[Good Stuff]

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

https://www.dolarapp.com/en-MX

 

[Cheap Bastard]

https://www.dolarapp.com/en-MX

Thanks.

 

[crypto]

Well the USD is falling in much of the world right now. I'm here in Mexico and the USD keeps falling here.

 

[Finance Prof]

Well the USD is falling in much of the world right now. I'm here in Mexico and the USD keeps falling here.

We probably haven't seen anything yet. If the world finally goes into Sell America mode we will probably see the mother of all inflation. I saw a member on CNN last night of Denmark saying they were prepared to go to war with the USA even if they know they would be crushed. Not sure that would happen. They were forced to sell the US Virgin Islands before when a similar threat happened by the USA saying they would invade if they needed to.

 

[crypto]

We probably haven't seen anything yet. If the world finally goes into Sell America mode we will probably see the mother of all inflation. I saw a member on CNN last night of Denmark saying they were prepared to go to war with the USA even if they know they would be crushed. Not sure that would happen. They were forced to sell the US Virgin Islands before when a similar threat happened by the USA saying they would invade if they needed to.

Let's be honest. Denmark won't go to war with the United States. That would be over faster than Grenada.

I had no idea until your post @Finance Prof that Denmark sold the Virgin Islands to the US. Exactly like you said. Seems to be the same situation and argument as Trump is making now. If they folded then probably likely they would fold now. To think we bought it for only $25 million in gold coins!

Speaking of gold probably a good time to get into gold! It has skyrocketed but keeps going up. Canada just declared that the USA empire is over. Bond market is sinking and countries all over the world could dump their US bonds. Default in the future most likely. Goodbye.

 

[Nasdaq]

Let's be honest. Denmark won't go to war with the United States. That would be over faster than Grenada.

I had no idea until your post @Finance Prof that Denmark sold the Virgin Islands to the US. Exactly like you said. Seems to be the same situation and argument as Trump is making now. If they folded then probably likely they would fold now. To think we bought it for only $25 million in gold coins!

Speaking of gold probably a good time to get into gold! It has skyrocketed but keeps going up. Canada just declared that the USA empire is over. Bond market is sinking and countries all over the world could dump their US bonds. Default in the future most likely. Goodbye.

I agree that gold isn't a bad idea but come on. Has anything Canada ever declared ever been taken seriously??? What else are people going to go into? There is a reason the dollar is still the king of the hill. People have been calling it over for us for decades.

Look at the UK, EU. Disaster.

 

[I Love Mate]

The Argentine peso reminds me of Bitcoin. Each side arguing their point but the damn thing the same every time I look at it even though it has wild swings depending on what week you bought it.

 

[Cheap Bastard]

https://www.dolarapp.com/en-MX

@Good Stuff do you need an Argentine ID to use this? It is asking me to upload my local ID. Is the only way to fund it to only do a bank wire? I added it to my partner's phone that has a local ID. Looks like the only way to fund it is with a bank wire to their US bank account? It says to wire to Lead Bank and they charge $3 for every time you load it?