Chasing the Almighty US Dollar in Argentina
In Argentina, visitors from abroad expect South American staples including wine, steak, and tango. Yet mixed amongst these austral icons, Americans are likely to see a familiar reminder of home, the US Dollar. Curiously, the Argentine Peso manages a co-existence with the US Dollar in Argentina, and the Dollar’s use is not just for international companies and financial institutions. Everyday Argentines, including school teachers, retailers, and housewives, are all quite familiar with the North American currency; they pivot between Pesos and Dollars depending on the situation and intended use. I wanted to learn more about US Dollar markets in Argentina, and to get some local perspectives,
In order to understand the US Dollar’s role in Argentina, it’s helpful to know some recent history. Over the past few decades, Argentina has had difficulties with inflation, including multiple economic crises. Since the introduction of the Argentine Peso in 1991 (replacing the Argentine Austral), the US Dollar has been a reliable and available alternative to the Peso. Yet the Argentine government has never been content with the US Dollar’s common presence within its borders, often intervening to control or regulate the exchange rate. One of the most audacious government actions was the surprise 2001 replacement of all US Dollars in Argentine bank accounts with Pesos, at a below-market exchange rate of one Argentine Peso for every US Dollar. The result of this history has been public skepticism about the value and stability of the Argentine Peso.
To better understand the current use of the US Dollar in Argentina, I reached out to some local contacts:
Alvise, 41, a software developer who works in Buenos Aires, had a lot to say about US Dollars. “The Dollar in Argentina is used for three main things: Savings, real estate, and imported vehicles.” He said that Dollars are generally used for large purchases, and mentioned the common use of Dollars in appraisal. “You have to keep in mind that Argentines value their assets, [such as] houses, imported cars, imported machinery, and other high-value assets, in Dollars.” Alvise did, however, emphasize that the Argentine Peso is still the predominant currency used for everyday consumer purchases. He all but dismissed the Dollar’s as a currency for small purchases, “Use of the Dollar is not common for everyday low-value transactions.”
Ezequiel, 33, an industrial designer, had similar perspectives “A lot of people change from Pesos to Dollars as a form of savings due to the fluctuation of the Peso.” “It’s common to have the Dollar present as a reference currency, but not [for example] in a supermarket.” He also mentioned that for any purchase agreements that are denominated in Dollars, fluctuations between the US Dollar and the Argentine Peso can be problematic. “If one of the parties only has Pesos, it makes it difficult to fulfill the agreement.”
Sandra, a millennial who works at a bank in Buenos Aires, even shared with me an app that Argentines use to monitor the US Dollar to Peso exchange rate. She tells me that people follow the exchange rate and volatility minute-by-minute, and that people go a bit crazy when the US Dollar rises against the Argentine Peso.
Regarding the practicality of using two different currencies, there is a surprisingly robust infrastructure supporting the use of the US Dollar in Argentina. US Dollar-denominated accounts can be opened at local Argentine banks, individual money exchangers can be found on local streets, and some ATM machines even give customers the option to withdrawal US Dollars or Argentine Pesos as part of their standard withdrawal menu. A sizable portion of the Argentine workforce converts a large part of their monthly paychecks into US Dollars immediately after they receive their monthly wages to protect their savings.
There seems to be a consensus amongst locals that the use of the US Dollar in Argentina is a symptom of bigger problems with the Argentine Peso. Alvise stated plainly “The [Argentine] national currency is always losing value.” He further summarized,“The use of the Dollar is a consequence of many years of not having a national currency that serves to keep value.” Ezekiel had similar thoughts “As long as the Peso is not a strong currency, the [Argentine] relationship with the Dollar is not going to change.”
I was curious about behaviors that this currency situation may cause. The lack of confidence in the Argentine Peso is very intertwined with the lack of trust in the government, and to a lesser extent, with a lack of trust in Argentine banks. Alvise commented about some of the hoard mentality tactics, “It’s very common for people to have large sums of [Dollars] hidden in their houses. Those with more resources even transfer their Dollars to foreign banks in Switzerland or the United States.” In the past, the Argentine government tried to enact policies defining exchange rates and regulating the quantity of Dollars that individuals could buy, referred to as the “Cepo Cambiario,” (2011 through 2015). This created an unregulated black market for US Dollars. Alvise mentioned that there were instances of people loading their cars with currency and taking the ferry to Uruguay to make cash deposits into foreign banks, and other cases in which people would withdrawal Dollars in Chile and drive back home to Argentina to sell at a gain.
Overall, this current dual-currency situation is likely to continue into the foreseeable future. As long as the Argentine Peso is considered less reliable than the US Dollar, there will continue to be a large Dollar market in Argentina. And while the future reliability of the Argentine Peso remains a question to be answered, Argentines have little doubt about the current or future value of the almighty US Dollar.