Savers take advantage of the “cheap” dollar and they eat up the entire trade surplus of goods and almost half of the foreign currency issued by debt abroad. This happened in the first two months of the year, when they consumed almost US$5.7 billionin the middle of the summer holidays in which millions of Argentines traveled abroad. The amount is not even higher due to the extreme dollarization last year, prior to the legislative elections, which limits demand because many now use the amounts purchased at that time.
Between January and February, the individuals carried out net purchases of dollars for US$5,698 million in the official exchange market, according to the latest data from the Central Bank. The majority corresponds to the purchase of “notes without specific purposes”, which totaled US$4,157 million. According to the monetary authority, a good part of the amount is deposited in local accounts or is used to pay for consumption in foreign currency with cards, so it does not leave the financial system.
Although demand decreased compared to peaks recorded in September and October of last yeardriven by electoral uncertainty after the initial triumph of Kirchnerism in the province of Buenos Aires, the records reflect that there is a relatively high floor: even with the extreme dollarization of those months, with amounts that many people still hoard, the record for the first two months was even much higher than the same period last year, when it was almost US$1.7 billion.
Foreign trade dollars disappear into private hoarding
The Institute for Argentine Social Development (Idesa) makes an interesting observation: Most of the dollars that enter the country through commercial and financial means end up hoarded by individuals. In the first two months, he specifies, based on BCRA data, the trade balance in goods left a positive net balance of US$4,000 million, while international loans to private companies based in the country were positive for US$3,800 million.
Meanwhile, as mentioned above, in that period individuals demanded almost US$5.7 billion in the official exchange market. This implies that, through the direct purchase of banknotes and consumption in foreign currency with cards, they consumed:
- The entirety of goods trade surplus (US$4,000 million)
- Almost half of the foreign exchange earnings corresponding to the issuance of debt securities abroad by companies (US$3.8 billion)
“The two most important sources of dollar income to the country are being used fundamentally for people to hoard dollars. This is explained by the uncertainty and bad experiences of the past, but it is neither desirable nor sustainable. The calm in the market is based on covering the demand for dollars to hoard with the foreign exchange that is generated thanks to the contraction of imports, which is what maintains the trade surplus, and the income of dollars from debt abroad,” the entity highlights in a report.
Accumulated purchases exceed 41 billion since the flexibility
Since April of last year, when President Javier Milei relaxed exchange controls, until February of this year (latest official data available), the Net purchases of dollars by individuals amounted to US$41,556 million. Within that amount, US$37,151 million correspond to purchases of “notes for non-specific purposes”, so hoarding explains a large part of the accumulated demand of the last eleven months.
It should be noted that the total includes the entire April balance and the release of exchange controls was applied in the middle of that month. If April is excluded from the account, the accumulated until February is US$39,309 million. It must also be taken into account that the balance for March is still unknown, data that the Central Bank will publish at the end of this month.
During this period, the peak in demand for dollars was recorded in September and October, between the legislative elections in the province of Buenos Aires and the national ones. The market’s fear of a victory for Kirchnerism in the national elections, after the victory in the province of Buenos Aires, triggered net demand to US$6,857 million in September yu$s5,068 million in October. The lowest demand was recorded in November, when it fell to US$1,596 million, due to the calm of the market after the resounding victory of Milei.
Idesa demands to accelerate the end of the stocks to avoid a new crisis
“It is essential accelerate the pace towards the definitive exchange, monetary and financial regime. It is essential to eliminate the remainder of the stocks so that there is total freedom of exchange transactions, give legal tender to the dollar and let the exchange rate and interest rates be determined by the market. This will avoid risks of exchange appreciation and will give fluidity to credit in both pesos and dollars. More predictability and more credits are vital to reactivate private consumption and national production,” says Idesa.
The entity highlights that accelerating the normalization of the exchange, monetary and financial regime has risks of generating turbulence, especially in the disinflation process, but “it will be a transitory phenomenon, since stability depends on maintaining the firm commitment to fiscal balance and the ordering of the Central Bank.” In other words, he maintains, “it will be a specific episode of limited dimensions and not the traditional crises derived from an unsustainable accumulation of exchange rate appreciation in a framework of fiscal deficit and monetary disorderas it was in the past.”
