You are here
Argentines send money underground to evade exchange controls
Coming soon to another country with rigged markets near you?
* * *
By Katia Porzecanski
Bloomberg News
via Business Week
Friday, October 26, 2012
http://www.businessweek.com/news/2012-10-26/pesos-go-underground-as-doll...
Argentine President Cristina Fernandez de Kirchner’s foreign-exchange controls are driving pesos underground.
A quarter of Argentines are keeping their pesos at home, up from 19 percent a year ago, according to a survey conducted in September by the Catholic University of Argentina and TNS Gallup. The increase reflects how people are shifting money out of banks to trade dollars in a cash-dominated black market where the cost of the U.S. currency has surged 35 percent this year, according to Buenos Aires-based research company EconViews.
The migration of cash out of the financial system is stripping banks of funding and undermining Fernandez’s efforts to hold down interest rates and bolster an economic rebound. The 30-day deposit rate has jumped 1.8 percentage points in the past four months to 14.8125 percent. A three-day decline of 0.8 percentage point that pared the increase in the benchmark rate will prove short-lived as annual inflation of 24 percent drives more Argentines to move money into the underground economy, said Eric Ritondale, an economist at Econviews.
... Dispatch continues below ...
Opinion Around the World Is Changing
in Favor of Gold -- Find Out Why
When Deutschebank calls gold "good money" and paper "bad money". ...
http://www.gata.org/node/11765
When the president of the German central bank, the Bundesbank, pays tribute to gold as "a timeless classic". ...
http://www.forbes.com/sites/ralphbenko/2012/09/24/signs-of-the-gold-stan...
When a leading member of the policy committee of the People's Bank of China calls the gold standard "an excellent monetary system". ...
http://www.forbes.com/sites/ralphbenko/2012/10/01/signs-of-the-gold-stan...
When a CNN reporter writes in The China Post that the "gold commission" plank in the 2012 Republican platform will "reverberate around the world". ...
http://www.thegoldstandardnow.org/key-blogs/1563-china-post-the-gop-gold...
When the Subcommittee on Domestic Monetary Policy of the U.S. House of Representatives twice called on economist, historian, and gold standard advocate Lewis E. Lehrman to testify. ...
World opinion is changing in favor of gold.
How can you learn why and what it will mean to you?
Read the newly updated and expanded edition of Lehrman's book, "The True Gold Standard."
Financial journalist James Grant says of "The True Gold Standard": "If you have ever wondered how the world can get from here to there -- from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren -- wonder no more. The answer, brilliantly expounded, is between these covers. America has long needed a modern Alexander Hamilton. In Lewis E. Lehrman she has finally found him."
To buy a copy of "The True Gold Standard," please visit:
http://www.thegoldstandardnow.com/publications/the-true-gold-standard
"Money's moving out of the banking system and out of the formal economy," Ritondale said in a telephone interview from Buenos Aires. "As much as the government wants to promote the use of pesos, the truth is they won't be able to achieve it. You can't get it done" with interest rates below inflation.
The so-called badlar rate, which banks pay on deposits of 1 million pesos ($210,400) or more, will climb to 17 percent by the end of this year, Ritondale said. That's more than double similar rates in Brazil and almost five times those in Mexico.
The average interest rate offered among private banks for time deposits less than 100,000 pesos fell to 12.64 percent on Oct. 22 from an eight-month high of 12.85 percent on Oct. 19, central bank data show. Total peso deposits increased at the slowest pace in a year in September, central bank data show.
Fernandez's controls are making it harder for Argentines to buy dollars to protect against inflation and a weaker currency.
The university survey, conducted from Sept. 21 to Sept. 30, found that 11 percent of individuals said they choose to buy dollars to keep at home or put in a bank as a preferred method for savings based on convenience, down from 21 percent a year ago, after the restrictions were set in place.
"Banks aren't offering attractive interest rates," Angeles Arano, one of the researchers at TNS Gallup who conducted the poll, said in a telephone interview from Buenos Aires. "There's no incentive for people to put their money in the system."
Argentine bonds fell today after the country lost a bid to reverse U.S. lower-court rulings that may help creditors collect $1.4 billion on defaulted debt. Dollar-denominated notes due in 2015 dropped 4.42 cents to 85.12 cents on the dollar at 11:50 a.m. New York time, pushing yields up 2.02 percentage points to 13.55 percent, according to data compiled by Bloomberg.
The U.S. Appeals Court in New York ruled that Argentina, which carried out a record sovereign default in 2001, can't discriminate against holders of the defaulted bonds in favor of holders of the securities it restructured. A three-judge panel upheld orders issued by U.S. District Judge Thomas Griesa in Manhattan.
Of the 41 billion pesos pumped into the nation's monetary base this year by the central bank, 84 percent are circulating among individuals, according to the latest central bank data. That compares with 59 percent in the same period last year. In total, just 21 billion pesos are in the banking system, about 8 percent of the monetary base on Oct. 12.
Cash in the hands of individuals accounted for 51 percent of private money supply, compared with 49 percent a year ago, EconViews found in an Oct. 22 study of central bank data.
The country's money multiplier ratio, an indication of how much central bank-created cash is making its way through the financial system, fell to 1.495 on Oct. 5, the lowest since December 2007.
Bank deposits expanded 37 percent in September from a year earlier, while lending grew 40 percent, central bank data show.
Last month liquidity in the banking system dropped 0.3 percentage point from August to 35.5 percent, the lowest since December. The central bank defines liquidity as the percentage of cash, deposits in current accounts and central bank notes relative to total deposits.
The badlar will resume its climb as liquidity drops and Fernandez's recent measures, including forcing insurance companies to allocate $1.5 billion in state-sponsored projects, deter investment, according to Maria Jose Anastasio, a portfolio manager at Standard Bank Argentina SA.
* * *
Join GATA here:
New Orleans Investment Conference
Wednesday-Saturday, October 24-27, 2012
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana
http://www.neworleansconference.com/
* * *
Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:
http://www.goldrush21.com/order.html
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Fred Goldstein and Tim Murphy open All Pro Gold
Longtime GATA supporters Fred Goldstein and Tim Murphy have brought their many years of experience in the precious metals and numismatic coins to All Pro Gold as metals brokers who specialize in the delivery of gold and silver bullion bars and coins as well as numismatic gold and silver coins. Fred and Tim follow these markets closely and are assisted by a team of consultants in monitoring market trends. All Pro Gold offers GATA supporters competitive pricing on all bullion products and welcomes inquiries. Tim can be reached at 602-299-2585 and Tim@allprogold.com, Fred at 602-799-8378 and Fred@allprogold.com. Ask about their ratio strategy and the relationship of generic $20 dollar gold pieces to 1-ounce gold bullion coins. Visit their Internet site at http://www.allprogold.com/.
