what would be the equilibrium price of the currency

It is not uncommon to hear economists say that the dollar is very expensiveas well as government officials trying to defend the idea that it is not necessary to practice a devaluationamong them, the president of the Central Bank of the Argentine Republic (BCRA), Miguel Pesce.

The reasoning has a certain logic. If the Government wanted to put the Real Multilateral Exchange Rate (TCRM) in equilibrium, would have to apply a not very abrupt devaluation, of just 7.03%. With this, it would be enough to have an exchange of goods and services with the main 12 commercial partners of Argentina in a correct way. It would be a value in which local companies could export competitively and, in turn, not have a rain of imports.

What is the “balance” value of the dollar?

It could be said that the value of the North American currency in Argentina would have to be located between $143 and $150 if adjusted by that index; that is, half of what is available on the market. Everything that is above these values ​​is explained by the distrust in the Government and the economic mischief that the Alberto Fernández administration has been committing.

The Multilateral Real Exchange Rate is only a reference that the Central Bank has, which is built based on the prices at which the country trades with a dozen nations and regions, which are the main suppliers and destinations of local merchandise. Ideally, it would coincide with the market exchange rate -that is, the value at which economic agents buy and sell currency-, but this is not the case.

The widening of the exchange gap generates harsh pressures on the price of the official dollar.

The current value of the TCRM is appreciated. In November 2019, towards the end of Mauricio Macri’s government, it was 27% depreciated, that is, it was favorable for exports and made imports more expensive.

From the moment that the Frente de Todos came to power and began to use the dollar as an anti-inflationary anchor, it slowly appreciated until it is now at levels similar to those in December 2001, prior to the outbreak of convertibility. The value of the TCMR of July 2022 is equivalent to 97.92% of the reference value (=100 12/17/2015). The difference with 2001 is the greater amount of pesos on the market, which 21 years ago there was not because the rule that was tried to maintain was “1 peso, 1 dollar.”

From there, some of the main statements by Pesce and government officials stem from the sense that no need to change the exchange rate. The president of the Central Bank makes the following calculation: in Argentina, imports per month reach US$8,000 million, of which US$2,000 million correspond to the exceptional increase in the price of energy due to the war in Ukraine . In the BCRA they calculate, then, that if they reach August, in that month energy imports decrease because the hardest part of winter is over, and then the balance is balanced.

After that moment, dollars will not be missing, supply and demand are balanced and the price drops. That reasoning does not take into account other factors and it even seems unserious. For example, the more pesos in circulation and the fall in the demand for national currency as a result of uncontrolled inflation, coupled with a government that is absolutely ineffective in adopting a path of action that restores a minimum of balance.

BCRA reserves hit by energy imports.

BCRA reserves hit by energy imports.

The Government does not need to devalue?

In the Government they state that they do not need to devalue and, what is more, they defend tooth and nail the official exchange ratel. In that eagerness to prevent the last dollars of its remaining liquid reserves from escaping, the Central Bank is virtually stopping import payments. Since the last measure that obliges importers of certain types of goods to compulsorily finance their purchases for 180 days, the companies affirm that they have no longer been able to access the foreign exchange market.

In a recent meeting organized by the Chamber of Commerce to analyze the scope of the BCRA resolution, which generated all kinds of doubts, the companies complained that although they obtain authorization from the Ministry of Industry to bring goods and supplies from abroad, when it arrives At the time of validating the SIMI (the name by which the declarations of the Integrated Import Monitoring System are called) through terminals installed in banks that operate in foreign trade, the Central Bank does not authorize them. This is forcing SMEs and suppliers of supplies for companies to go to look for the dollars to the financial systemthat is, the cash with liquidation (CCL) or to the MEP. whose values ​​are in the order of $330.

The dollar is “very expensive” market analysts often say. Some argue that if the Government managed to calm down the economic scenario, a new equilibrium value for the economy would have to be at a value of $180.

Companies that cannot access the official dollar go to financial exchange rates, above $300.

Companies that cannot access the official dollar go to financial exchange rates, above $300.

The CCL dollar, in a high value

About, a report from the Faculty of Economic Sciences of the UBA considers that the current crisis has to do with the confidence. He points out that “the accumulation of macroeconomic inconsistencies has combined a cocktail that is difficult to manage, which is manifested in a high level of liquidity that takes refuge in the dollar, anticipating greater difficulties and resulting in an exchange rate gap that reached 160%”.

“However, it should be noted that the real exchange rate measured at CCL it is considerably highexceeding the levels of 2002 (maximum) even when the socioeconomic conditions are considerably different”, adds the report. Therefore, the study prepared by Luis Tonelli, director of the RA Center of the house of studies and the economists Matías De Luca, and Julían Leone, points out that “it could be thought that the current price of the dollar responds more to a matter of expectations, so it would not be a reference price, making it necessary to send a political signal in the right direction in order to generate a shock of confidence”.

The report from the Faculty of Economic Sciences states that “the appearance of Batakis was not enough to anchor expectations.”

“A week after his inauguration, the dollar was already trading at $300, hand in hand with new restrictions on imports and access to the official dollar, which led companies to seek foreign financing to finance their purchases abroad,” the work concludes.

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