The truth behind the exchange rate

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The truth behind the exchange rate

Enero 2015

The year ends on a strange note: while the EM world is in turmoil and the currencies are depreciating everywhere, Argentina has managed to stabilize the parallel exchange rate and insists in keeping the official exchange rate quasi-fixed in an effort to control inflation. The question at this stage is whether this stability is for real and how long can it last.

Much of the explanation lies in the improvement in the outlook for international reserves, largely thanks to some cosmetic moves. The one year currency swap with China and some borrowing from the Bank of France added roughly USD 3.0 billion while the arrears on payments of imports now amounts to roughly five billion dollars that nobody knows how they will be settled. The inflows from the 4G auction added another USD 0.8 billion more in recent weeks. In the absence of these gimmicks headline reserves would be around USD 22 billion and the markets would be nervous. But creative accounting has done the trick and the market at the moment seems comfortable with these figures.