Dinero Falso (Funny Money), Humo y Espejos (Smoke & Mirrors) – A Short Recent History of the Argentina Peso

Argentina is full of smart people, has an abundance of natural resources, and exports enough food to feed people in other parts of the world, but yet they do not seem to be able to handle its own financing.  If one were to have a general rule, it would be that the currency in Argentina implodes every 10 years. To get an idea of just some examples of the things I have only encountered in Argentina:

  1. The price of a taxi from the international airport, Ezeiza, to the center of the city has risen from A$25 (“A$” will be used as the symbol for pesos Argentine) in 2001 to A$215 today (it might be different tomorrow).  In 2009, it was $120.
  2. This is the only place in the world that I have received money out of an ATM (a Bank of Boston ATM) that was not the current money of the time.  In 2001, I got A$600 out of the ATM, and when I tried to use it, I learned that it was the currency in place earlier to the current pesos.
  3. You just never know what the official conversion rate for Argentine pesos to US dollars will be.  When I was first here in 2001, it was one peso for one dollar.  In 2002 after the 2001 financial crisis here, overnight the value of the peso changed to about 4 pesos to one US dollar until about 2010.  After 2010, the number of pesos to the dollar has changed so that the official rate is 5 pesos to one dollar.  There is an unofficial exchange rate called the “Blue” exchange rate.  In October, I was able to use the Blue rate to exchange pesos at the rate of 6.2 to one dollar.  The current Blue rate of exchange is 12.9 to one dollar.
  4. Currently, if an economist publishes the current rate of inflation (over 30%), he can be fined for put in jail for not agreeing with the official rate of inflation published by the government of 15%.
    The International Monetary Fund (IMF) censured Argentina for fudging official inflation statistics in February 2013.  The main reason the government is fudging the inflation numbers is that it has issued bonds that is has guaranteed the holders that their value will be protected against inflation for the original principle they invested in the bonds.  With a lower official rate of inflation, the government of Argentina has to pay less to the bondholders.
  5. From the early 1990s until 2001 an Argentine could deposit either pesos or US dollars into bank accounts and they were guaranteed that they could get dollars back from the bank.  After the 2001 financial crisis, those that deposited pesos were only able to retrieve pesos.  To understand, suppose you deposited $10,000 into your bank account in Buenos Aires in January 2001, and in 2002 you tried to get your dollars back.  In 2002, you could not even that money out of your accounts, and later when you could get your money, you got A$10,000 which when you were allowed to withdraw money from the banks again, you’re A$ would only be worth $2,500 dollars.
  6. Most people who I talk with in Argentina will not keep their money in a bank here.

The events of the last 10 years are not the only times that Argentina has had trouble with their money.  Below are some of the other examples of current issues.

Year Currency Event
1983 A new currency was put in place with old pesos being exchanged at the rate of 10,000 for one new peso.
1985 The pesos were re-denominated again.
1988 – 1989 A period of hyperinflation reaching 12,000% / year in 1989.
1992 A new currency was issued.  Old Australs (the name of the currency at the time) were exchanged for new pesos at the rate of 10,000 Australs for one new peso.
1992 Law set the new peso at one to one with the US dollar.  This was done to keep inflation out of the peso.
2001 Government of Argentina tells foreign debt holders that it cannot pay its sovereign debts.  In 2003, the government of Argentina agreed to pay debt holders at the rate of 30% of the original debt.  About 90% of the foreign debt holders agreed to this, but some did not, and these cases are still winding their way through US courts.
2011 Argentine tries to prosecute economists for publishing inflation figures that to not agree with the government figures.
2014 Argentina peso devalues currency.  On 30 Jan 2014 the peso was 8 to US dollar for the official conversion rate, and was 12.9 pesos to one dollar on the black market.

It is very hard to understand how Argentina ever got to having currency issues on a continuing.  From the late 1860s until 1930, it had one of the highest Per Capita Gross Domestic Products in the world.  In 1905 the Per Capital GDP was the same as both Germany and France.  In 1930, a dictatorship took over, and ever since then there have been several other editorship’s, and many changes of government.  The currency issues since 1930 seemed to have followed the political instability in the country consistently to the present.

When I talk with people in the United States about the economy in Argentina, I get the feeling that most people just understand what I am talking about.  I believe that is because no one in the US has a way to relate to, or to understand what I am talking about.

I hope this short history of the currency issues in Argentina for the last few years provides you with some sign of what life is like here.  The really sad thing is that people in Argentina just seem to accept this as a normal part of life.

Todays value official value of the peso, and the black market can be checked at:  http://dolarblue.net/