Argentina’s black market of dollars saving citizens’ wealth amid high inflation

With an unofficial inflation rate of 25 percent, Argentines have been desperate to save their wealth. As the Argentine peso continues to experience its devaluation by the nation’s central bank, citizens have been purchasing luxury vehicles, such as BMWs, Jaguars and Mercedes, gold and bitcoins. They’re doing this just to protect their savings.

Despite Mercedes Marco del Pont’s, the head of Argentina’s Central Bank, claims that money printing does not lead to inflation, the peso falls by a few percentage points each week, which is a signal that Buenos Aires is headed towards hyperinflation.

The measures imposed by the government aren’t working either. This year, Argentina imposed a temporary price freeze on all products sold in the nation’s major supermarket chains. However, as history has shown, this almost always leads to shortages of a certain product, like milk, cheese and meat (see Venezuela) – similar controls have been placed throughout Argentina’s history and they could not prevent the nation from experiencing hyperinflation.

Argentines have been prohibited from acquiring United States dollars, but the high demand has created a large black market. The obsession with dollars has been increasing since October of 2011 when the government conducted probes to clampdown on the love of greenbacks – part of the reason is the central bank wants to refrain from having dollars in circulation so it can help service its foreign debt and infrastructure investment.

Black market operators tend to charge the consumers, mostly the middle- and upper-classes, high rates in order to obtain U.S. dollars. Even with the tremendous costs to gather dollars, it is estimated that roughly $80 billion has left the system in the past five years.

Supporters of President Cristina Fernandez de Kirchner say they should quit feeding the black market and have some faith in their pesos. They also argue that the black market has become elitist because the poor are simply attempting to survive on their insufficient incomes. However, with annual prices increasing by 25 percent every single year, many Argentines have no choice but to partake in the underground foreign exchange market.

“Argentina has seen a significant amount of money leaving the system over the last five years, some $80 billion,” said Gabriela Nudel, head economist at Fundacion Capital, in an interview with Global Post. “This made the government decide to tackle the issue in a questionable manner — by closing off the ability for the money to leave the system. This, of course, has created a parallel, or informal, market.”

The news outlet also profiled how Argentines participate in the transactions. One gentleman traveled to a “cueva,” entered a French-style tower in the downtown core, provided the desk with a password and an office number, he waits, is given the black market rate, he accepts and the transaction is completed.

For both sides, there are tremendous risks because both the buyer and the seller can be detained and imprisoned – also, there can be other criminal activity; an American was shot when he was caught in the crossfire of a robbery last year.

No matter how dire the situation has become, the government still does not understand the ramifications of its central economic planning initiatives. Despite the country’s economic conditions and the state of its currency, the government announced a 35 percent increase in government child benefits and jumps in other welfare programs.

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