Argentina’s blu market for U.S. dollars

Copyright 2013 John T. Reed

Argentina has high inflation—25% to 40% or thereabouts.

They also have the usual capital controls and an official exchange rate to exchange the Argentinian peso (ARS) for the US dollar (USD). At present, the official rate is $1USD = 5.87 ARS. Check the current rate by Googling ARS currency.

Tellingly, the Argenitine government and everyone else in Argentina will buy dollars at the official rate, but will not sell them at that rate. When an official exchange rate is legit—for gold or currency—the government is by definition willing to either buy or sell at that rate. One-way streets like currently in Argentina are bogus official rates. The black (dolar blue) market will buy or sell USD for about the same price as ARS.

Their capital controls include among other things:

• limiting imports

• limiting dollars available for travel outside Argentina

• a tax on USD credit card charges made outside of Argentina

• limiting payments made to suppliers outside Argentina.

Official rate versus black market rate

When governments establish an official exchange rate, it typically sucks compared to the market rate. Since the Argentinian government will not allow ARS to be exchanged for USD except for certain permitted international transactions, there is no legal market price. Essentially, the Argentinian government has outlawed free market trading of the ARS. Accordingly, U.S. or other non-Argentine banks and Amex offices that typically sell you any foreign currency you want are not in the ARS business. Reportedly some places in Chile and Uruguay will buy ARS from you but only at a dolar blue (black market) exchange rate, not at the official Argentinian government rate.

So, inevitably, there is a black market, only in Argentina, for unknown reasons, they call it the blue market or the dolar blue. One such market on line (http://www.preciodolarblue.com.ar/) says today, 10/24/13, that they will buy dollars for 10 ARS and sell them for 10.05 ARS. How they do this without getting into trouble with the Argentinian government, I do not know.

I have never been to Central or South America. I have never been to Argentina. What follows is stuff I have gleaned from talking to people and searching the Internet. I would appreciate additional information from readers in the know.

If you tell an Argentine that you are going to Buenos Aires, they will immediately tell you to take lots of USD cash.

Large denominations better deal?

One poster on the net said $50 and $100 denominations of USD are preferred and smaller denominations are discounted. He thought that meant you should only take $50s and $100s. I say, “Wait a minute. I doubt the blue market gives change. Another parallel market, the barter market, generally does not give change. So if the blue market does not give change, then you need the correct denomination for each purchase. The discount for not being a $50 or $100 I suspect is less than the amount you would lose if you could not get change.” I would appreciate it if someone would apprise me of the discount for the smaller bills. Or if I am wrong about not being able to get change.

The Financial Review of Australia website says to bring USD $100 bills without creases to get the best black market conversion rates, but also to bring smaller denominations to make smaller purchases..

In another article, I read about Europe that when there is a currency black market, crisp, brand new, pristine bills of the contraband currency sell for a higher price than wrinkled ones. I do not understand why that is or how you are supposed to keep them in that condition when you carry them around. One web site says same in Argentina especially outside of the big cities.

Reportedly, the more USD you want to exchange at one time, the better deal you get on the ARS, but the greater the dangers, too. Also, unless you have a particular high-priced purchase in mind, the more you convert at one time, the longer it takes you to spend it and therefore the more risk of losing purchasing power in the interim. I would think you would want to convert USD to ARS on a just-in-time basis.

Financial Review says it is best to change a few hundred USD at a time to ARS and to carry your USD in a money belt. Generally, money belts are wise for most foreign travel, (I got one to go to London, Paris, and Rome in 2008) and especially in Latin America, Asia, and the other areas I wouldn’t travel to at all, like Africa and the Middle East.

FR notes “For those interested in Argentina’s history of economic struggles, it is worth a visit to the Museo de la Deuda Externa (Museum of Foreign Debt) within the economics department at the University of Buenos Aires.” Foreign debt is sort of a code word for hyperinflation because foreign debt is denominated in USD so they have to acquire USD to repay it, which is hard when their own currency is in one of its chronic hyperinflation periods.

FR says the Argentine government has even manipulated the Economist’s Big Mac index, apparently ordering Argentine McDonalds to sell their Big Macs for 40¢ less than other similar meals and banning advertising that price. The Economist Big Mac Index shows the prices of Big Mac around the world. If your country’s are higher than those in the U.S. ($4.21), your currency is overvalued. If Big Macs are cheaper in your country than in the U.S., your currency is undervalued. The Argentine government is trying to make their offical conversion rate make the ARS look undervalued.

Small ARS coins like dolar blue

Small coins are an issue in Argentina. I have discussed this at length with regard to U.S. gold coins in the early 1930s, U.S. silver coins in the early 1960s (now know as “junk silver”), and U.S. pennies and nickels today.

Mints buy metal to mint coins. They cannot afford to pay more for the metal than the face value of each coin. They typically do that for a while then announce that the coin in question will no longer be minted. The U.S. did that with gold coins in 1933, silver coins in 1965, and they are about to do it with pennies and nickels. Canada stopped minting pennies on February 4, 2013. The U.S. will do the same regarding pennies and nickels any day now.

I met a man who was a kid in Germany during and after World War II. He said his mom saved the lowest denomination coins during the Nazi regime. After the war, the paper Reichsmark was worthless, but the Nazi coins were not because they contained real metal. Postwar Germany had price controls and all that similar to Argentina. And a black market. His mother was able to buy stuff with the old Nazi coins, but otherwise had great difficulty.

In Argentina, same deal. The paper currency has fallen in value from 1ARS = 1USD in 2000 to the above 5.87 (official) or 10 (blue market). Because the lowest denomination coins contain metal worth as much or more as the face value, Argentine retail merchants will accept them, but will refuse to give change in them, to the point of refusing to make the sale if you are entitled to change in coins and insist on receiving change in coins. For a while, buses would demand exact change in coins, then would sell those coins at a profit. Now reportedly most buses in Buenos Aires will accept a debit-card type payment for bus fare, apparently because riders refused to give up valuable metal coins for a less valuable ride.

Peter Greenberg’s Buenos Aires Like a Local says there is a coin shortage in Argentina, that many merchnts will only sell for exact change and put signs in their store windows saying “No hay monedas.” (We have no coins.) Greenberg says if any change comes into your possession hold onto it for dear life. He says the buses only take coins.

Because I have researched inflation so thoroughly, I stopped giving up pennies or nickels several years ago here in the U.S. If, for example, I have to pay, say, $5.83 and I have $5.93 in my pocket, I will instead pay $6.00 to get the nickel and pennies in change. My wife and I now have a sort of Roach Motel for pennies and nickels. They check into our pockets, but they don’t check out. I also buy nickels from the bank.

Does that sound kooky? If so, you are showing your ignorance of inflation. It does not sound kooky to Argentinians who have been living with this crap off and on almost their whole lives. Once you hear in the media, any day now, that the U.S. has stopped minting pennies and/or nickels, probably the lightbulb will go on for you. If and when we get hyperinflation in the U.S., it will darned well go on. In 2013, U.S. pennies and nickels are what U.S. gold coins were in 1933 and U.S. silver coins were in 1965, great bargains that you literally let slip through your fingers and wish you had started collecting or going out of your way to purchase when you could. Don’t say I didn’t warn you.

I do not believe credit cards exist in hyperinflated countries, although if your card is issued outside the hyperinflated country and you have to pay your bill in USD or another stable currency, it should work just fine in an inflated country. But the local banks there cannot give residents of Argentina ARS today and let you pay back the same number of ARS three weeks later. Your US or other stable-currency cerdit card can only make purchases at the—lousy—offfical exchange rate.

Dangerous

Black market transactions of all kinds are dangerous. You may be cheated, robbed, physically assaulted, arrested, fined,or imprisoned. Because the transaction was illegal, you cannot complain to the authorities. Just think about the black markets we have in the U.S. now. They sell illegal drugs, prostitution, untaxed tobacco and alcohol, illegal firearms, illegal entry into the U.S., forged documents, and counterfeit USD.

In places like Argentina, buying anything with USD or buying or selling USD (other than at the official rate) is in that same illegal category. Paradoxical though it may sound, it may be that U.S. criminals who live in bad neighborhoods will have an advantage over law-abiding citizens in the early stages of U.S. hyperinflation. When you suddenly get a bunch of impossible-to-live-with laws, who can deal best with them? Career outlaws.

The purpose of black markets to to buy or sell contraband—products that resident are prohibited from owning—or to avoid taxes or price controls including income taxes and sales taxes.

Financial Review says,

…it is technically illegal. But the “dolar blue” exchange rate is so commonly known that it is printed daily in major newspapers, and websites are dedicated to the latest rates. Many shops will offer customers the black market rate – or at least something between the official and black market rate – if they pay in greenbacks.

Social media

There is a lot of dolar blue traffic on Twitter and Facebook and other social media. I do not understand that market but apparently it is a place to buy and sell USD at the illegal black market prices. There are dolar blue apps for cell phones.

Big cities best

Dolar blue exchanges are readily available in big cities, but not small ones in Argentina. In the medium-sized cities, the rate is less attractive for sellers of USD. The smaller the city, the fewer ARS you get for your USD.

In Buenos Aires, the best place to find lots of black market money changers (arbolitos) is reportedly Calle Florida, a main street with lots of pedestrians in Microcentro, the central business district. Casas de cambio in shopping arcades are reportedly less observed by police. The recommendation seems to be to get a recommendation on a good casa de cambio from a trusted local.

Xoom

www.Xoom.com is reportedly a way to buy ARS with USD at a near dolar blue exchange rate in Argentina. You pick up your money at a ]More[ store in Argentina by showing your passport and the transaction number which I presume is sent to you by email by the US person who sends you the Xoom money.

My Canadian banker said they did not recommend Xoom or deal with them. I do not know what to think.

For details on Xoom, read this article by a blogger about Xoom.

And here is a link to the XOOM current exchange rates: https://www.xoom.com/argentina/fees on October 27, they were offering $1USD = 8.9633 ARS. Compare that to the official rate of 5.87 and the dolar blue rate of 10.0. In this case, you would be paying XOOM 10 - 8.9633 = 1.04 ARS per USD to avoid the lower official rate and the squirrelly-ness of the places you have to go to get the 10 rate. I see no warnings about illegality and I do not understand why. That 1.04 ARS is about a 10% XOOM fee as a percentage of the total number of ARS you receive for your USD. The official rate is 5.87÷10= 58.7% of the dolar blue rate; the XOOM rate, 89.6% of the dolar blue rate.

XOOM only can be used to send money to family or friends, not for commercial purposes.

“Casas de cambio” (house of foreign currency exchange) reportedly give you close to the dolar blue rate—no paperwork record of the transaction—maybe no verbal mention of it, just a handwritten note of the rate. “Casas de cambio” give you a better rate if you find them on your own than if a street tout (“arbolito”) takes you there. He gets a cut. They are also called “cueva” (caves) because they are often dark, scary, dangerous places.

Uruguayan ATMs

Argentines go to Uruguay (across the Rio de la Plata from Buenos Aires) to get USD out of ATMs. It is a substantial trip that costs hundreds of USD. A recent visitor said you would see Argentines standing at Uruguayan ATMs by the hour withdrawing USD using the debit cards and pass words of many other Argentines. I surmise that having one person do this for many Argentines makes the cost of the travel across the estuary cost-effective. I do not know what rate the Uruguayan ATMs give for ARS deducted from the accounts of the Argentines in question.

I have another question about Uruguay and the other four countries that border Argentina—Brazil, Paruguay, Bolivia, and Chile. It appears clear that I can buy ARS with USD in those conutries at roughly the dolar blue rate.

The question I do not see the answer to online is can I then take the ARS I bought at the free-market rate in, say, Colonia del Sacramento, Uruguay, and go into Argentina without being arrested or having the confiscated or being fined. In other words, is it legal to take ARS into Argentina?

Probably sounds like a stupid question to people who are not familiar with Argentina, but once you get hyperinflation or even just high inflation, it is as if you have gone through the looking glass. It is possible that Argentina will not allow ARS purchased outside of Argentina into Argentina because if they do not let them in, they force tourists to use their own good currency to buy ARS while they are in Argentina. On the other hand, the fact that people can buy ARS in these five countries would seem to imply that you can take them back into Argentina because no one earth anywhere other than Argentina wants the damned Argentine pesos.

By the way, you may be wondering if hyperinflation in the U.S. would mean no one on earth outside the U.S. would want the mighty U.S. dollar. That is exactly what would happen. But, you say, the USD is the world’s reserve currency. Not after the day the dollar dies. Then it is merely a former world’s reserve currency. Quite the contrary, inflated currencies are always the same thing: a hot potato that everyone wants to get rid of as soon as possible, like the Argentine peso today.

All cash

Dolar blue is all cash. Buy anything with checks, credit cards, debit cards, or electronically and you are back at the lousy, official rate.

ARS is a hot potato. As soon as you get it, spend it, before it loses more purchasing power. Don’t bring any back home except as a souvenir piece of worthless paper.

Roughly speaking, everything in Argentina that you can pay for with USD or dolar blue ARS is half off.

Somewhat like US will be during hyperinflation

Why am I writing about this? Not to encourage you to go to Argentina. I am interested in Argentina because I think the US is going to get hyperinflation and Argentina is a 2014 case of a country that already has high inflation and the usual accompanying laws and black markets.

Am I saying that the above description of dolar blue is the way it will be in the US during USD hyperinflation? Partly.

Argentina is a Latin American culture with little respect for the rule of law. Also, they have been dealing with this crap forever and have long ago worked out the ways to handle it. In the US, there is no current equivalent of the casa de cambio or arbolitos (maybe on the Vegas strip). You can pay cash for everything here, but it is different and would draw some attention.

I expect the above will sound creepy to most Americans. Yeah. This is what high inflation does to a country. Once again, you can still buy foreign currency now in the places I recommend, namely Australia, Canada, New Zealand, and Switzerland and hold it in accounts outside of the U.S. so its’s outside of future U.S. capital controls. Then you don’t have to do any of this creepy stuff.

When the ’flation hits the fan in the U.S., you just vacation on 90-day tourist visas almost anywhere in the world and finance it from your pre-positioned foreign currency. You can access your AUD, CAD, CHF, and NZD via a debit card (expensive 3% to 4% charge over and above the currency conversion costs) or by wiring the money from your bank in Australia, Canada, or New Zealand (about $45) to a bank wherever you are on your “vacation.”

The situation in Argentina and all high inflation countries is extremely dynamic. You need to check to make sure you have the latest info.

I have written extensively about using foreign countries as places to put your rainy-day savings and possibly as a place to take refuge during US hyperinflation—namely, Australia, Canada, New Zealand, and Switzerland. So some readers may think I am scouting Argentina as a place to go to.

Hell, no! Quite the opposite. I see it as a high inflation freak show to get a better fix on what will happen and how to protect yourself in the U.S. if and when we get hyperinflation. I may travel to that part of the world and will look at places like Chile and Uruguay as possible refuges from U.S. hyperinflation. But Argentina is just a laboratory for seeing what high inflation looks like in all its dimensions in a contemporary society. As you would expect, with the internet and such, it is not the same as, say, Germany 1922. There are dolar blue web sites and apps. There are also cultural differences beween Germany in 1922 and Argentina in 2013 compared to the U.S. But I still think what is going on in Argentina today and how the people there deal with it is extremely instructive.

Here is a 1/9/14 email from a reader:

Hi john, I was reading your article on Argentina's black/blue market and I can confirm or disconfirm a few things for you....

My name is [I redacted it] and I have been traveling South America for the last 5 months and I am currently in Argentina. I was told by many people before coming here to use the black market especially because I am American and have easy access to USD. Anyway, they do want large bills, the higher the better (ie: 100s and 50s) because most of the people buying these bills are rich people in Argentina that are trying to keep their money from deflating, and who would want to carry 5 times the bills in $20s vs $100s. I have done street transactions and this is what they have told me. As of this morning they were offering $10.40 if you could exchange $1000 or more in $100s and $10 if you where not using 100s and/or less than $1000.


I remind readers of what I said above. the denominations you carry need to match the purchases or exchange you want to make because you are probably not going to be able to get change in USD. So if you are paying a cab fare or for a restaurant meal in USD to get a discount, the conversion rate may be less on an issue than inability to get USD change.