Remember in Macroeconomics 101 when you learned that the three ways that a central bank controls the exchange rate is via changing the discount rate, open market operations, or changing reserve requirements?
Obviously you do (not). So of course, you´ve probably lost sleep trying to figure out how a punch-drunk on power president like Cristina Fernández de Kirchner managed to bring down the
black blue dollar from 10.5 to about 8.5 in the matter of a few weeks!
According to the Wall Street Journal, “trading in the black-market dollar was virtually frozen between May 10 and May 13 as underground currency dealers closed their doors out of fear they might be raided by government agents.” No comment.
Then, the government forced state agencies such as ANSES to sell bonds. This lowers the market value of the internationally-traded bonds that people use to execute the “blue chip swap” of bringing dollars in and out of the country legally but at the blue rate.
Finally, the government raised interbank lending rates to pressure banks to sell assets. Basically this makes it much more expensive to just borrow some money from a friend at another bank, encouraging banks to sell (dollar-denominated) assets, mimicking injecting the market with dollars.
These tactics pulled the ridiculously named “Messi” dollar (seriously Financial Times, not a thing) from above 10 pesos to below a crazy 8.8 pesos per dollar. And since we come up with stupid names for every dollar exchange rates, I will officially christen this the “Tarantino” Dollar.
That’s right, you heard it here first.
So yeah, Cristina has vowed not to devalue the pesos while she is in office, but having a black rate of almost double the pretend made up rate is fairly ridiculous and has a pretty awful effect on the economy. So the government intervened in the black market through a combination of threats, favors, and policy measures.
Got it now?