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Black Market Premia in Argentina

Beyond BRICS, a Financial Times blog, reported today that the black market exchange rate for dollars in Argentina reached an all-time high of US$1.00 = P7.54 pesos. As the article mentions, this black market for dollars surged in 2011 after Cristina Fernandez de Kirchner’s re-election. Once reelected, Mrs. Kirchner approved a ruling that only permitted the official purchase of dollars [by individuals] for holiday reasons. In addition, there is an extra 15% charge on all credit card purchases made abroad. Finally, she banned dollars as a currency to be utilized for savings.

Source: PriceWaterhouseCoopers
As William Easterly eloquently described on his book “The Elusive Quest for Growth”, the creation of this black market premium acts as a “tax on exporters.” This is so, because the exports are sold at the official exchange rate and the imports are bought at the black market exchange rate. As a result, the existence of a black market results a tax on exports that consequently slows the aggregate growth of the economy. Finally, black market exchange rates take away incentives from to save in the national currency rather than buying dollars unofficially. As a result, people demand more U.S. Dollars at black market exchange rates in order to protect their wealth. Without exports to earn dollars, and with constant pressure to purchase dollars, foreign currency reserves will dry up, causing the national currency to depreciate further in a viscious cycle. Easterly asserts that the correlation between high black market exchange rates and growth is negative. However, we have yet to see negative growth in Argentina. Does this imply that Argentina’s economic growth is doomed to collapse?


  1. If enough transactions shift to the black market — after all, in the background there’s surely a big business in smuggling exports out so as to earn the more lucrative unofficial rate — then the black market can come to dominate, and the official rate becomes a fiction.

    Another angle is that the gap between the official and the black market surely invites corruption.

    But … what is the official rate? A gap of 1%? — yawn, that’s within the bid/offer spread for small denomination foreign exchange transactions.

    • perkins perkins

      The official rate and the gap associated with it are two big question marks in terms of trying to understand if a problem exists in the developing black market of Argentina.

      The fact that black market transactions and the corruption often associated with them can lead to interest and exchange rate volatility as well as tax evasion can skew the macro data means we cannot be sure if Argentina is staring a collapse in the face or not. I think examining the housing market or other non-traded indicators could help better answer this question, although Freddy’s paper detailing the agricultural sector will likely shed some light on this question.

  2. zhang zhang

    Why is the dollar market so attractive? Do people in Argentina expect the value of the peso to increase in the near future so they would rather purchase dollars rather than consume more goods and services?

  3. Maggie Maggie

    I could be off base here, but I wonder if this at all relates to Freddy’s term paper on Argentina’s agricultural industry and my paper on natural resources. With a large share of Argentina’s exports being natural resources, the exchange rate is bound to be affected possibly through ‘Dutch Disease’. Furthermore, as more labor and capital are shifted into the Agricultural sector, prices for non-traded goods, such as housing, are bound to appreciate relative to other prices. Could this be a reason people do not want to hold pesos?

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