You don’t have to spend a long time in Argentina before you realize that exchange rates are an everyday topic. Just in these first 5 months of 2019 currency exchange rate has been on everybody’s limps (including the Argentine media) several times.
The new year of 2019 started out with an exchange rate of 37.5 Argentine
Not to speak of the fact that a year ago, in April 2018 the exchange rate was 20.5 to 1 US dollar. Take a look at this graph, if you don’t believe me!
But what does all this mean? Why is it so? Why it is important for you when travelling to Argentina?
In this beginner guide to currency exchange rates in Argentina, I want to give you a short introduction to one of the most discussed issues in Argentina.
Being from a country where our currency is stuck to the euro at a fixed rate with a tiny plus/minus percentage fluctuance, living in Argentina for the past almost 3 years has been one big class in macroeconomics. This might sound boring but when you live with it every day, you get another interest in it and learn about it in another way.
This is a super complex topic, which there has been written many many academic articles about. I’m no expert in exchange rates – I simply just became fascinated with the topic living in Argentina. So, this will be a very light little pocket guide, but hopefully, it will also help you understand Argentina better.
The basic of currency exchange rates in Argentina
The exchange rate of a country’s currency is its value compared to other country’s currencies, and the exchange rate determines the relative price between foreign and domestic goods.
Therefore, the exchange rate gets affected when a country suffers high rates of inflation (i.e. price increases). This is due to the fact that both the exchange rate and inflation are affected by the money supply in a country’s economy. An increase in inflation might cause a country’s currency to depreciate e.g. loose value compared to other currencies – this is one of the things happening in Argentina! Apart from that, decreasing exchange rates might also be a sign of decreasing investor confidence in the local market.
In Argentine media, the peso will normally be compared to the US dollar. However, if you are wandering the streets of any major Argentine city to exchange into Argentine peso, you will see the peso compared to a wide range of other currencies. And you can easily exchange most major currencies at the exchange offices.
However, if you have the option to bring US dollars with you to Argentina, you might get a better rate on those than other currencies since there is a higher demand for dollars in the Argentine economy. Most Argentine actually have their savings in dollars.
The exchange rate of the Argentine peso is a floating exchange rate. A floating exchange rate refers to the fact that the rate of a country’s currency is determined freely based on the demand and supply conditions in the market. The Central Bank is not supposed to intervene in the exchange rate. Nevertheless, due to the insane fluctuation in Argentine peso, the Argentine Central Bank has recently been trying to control the exchange rate by placing a limit to it.
Why is currency exchange rates such an issue in Argentina?
It is a super hard question to answer! And if we had the answer on how to stop the crazy peso fluctuations, we would properly be heroes in Argentina by now!
As mentioned above, a country’s currency exchange rate reflects both its inflation rate and the investor confidence in this local market, and what is happening in Argentina is a combination of those two factors – among others.
A depreciation of a country’s exchange rate will make products listed in a foreign currency relatively more expansive, and hence decrease the common Argentine’s purchasing power when going abroad or buying products from abroad. Similarly, it makes the purchasing of imported foreign goods more expansive in Argentina. Also decreasing the common Argentine’s purchasing power.
It is in the interest of countries to keep their exchange rate as stable as possible since it is assumed to help promote trade and investment, and hence create economic stability.
These are just some of the reasons why the Argentine peso’s exchange rate is such a huge issue.
A bit of history about exchange rates in Argentina
Argentina has a long history of economic instability. After its democratization in 1983, Argentina struggled with hyperinflation which the government and central bank could not get under control no matter how hard they tried.
As a consequent, in 1991 a radical step to drive inflation out of the economy was taken. Argentina adopted a Currency Board. It introduced The Convertibility Law which tied the Argentine peso to the US dollar at a one-to-one parity. The introduction was successful, and at the least, it broke with the inflationary dynamics and inflation decreased.
However, from approximately 1995, economic growth decreased, and the economy started to enter in recession. This and a variation of external factors resulted in the
After the collapse, Argentina has been haunted by an ever-increasing inflation and devaluation of the Argentine peso.
In 2003, the Peronist party’s candidate, Nestor Kirchner won the presidential elections. In the following 12 years until 2015, Nestor and his wife Cristina Fernández de Kirchner ruled Argentina. Under this former government trade restrictions aimed at protecting the national industry. In connection to that, the currency exchange rate was kept artificially down while inflation increased dramatically.
In 2015, a new era was assumed to begin in Argentina when the center-right candidate, Mauricio Macri won the presidential elections. However, Macri has been unsuccessful in adjusting the Argentine economy.
Even though, his government focused on ending currency restrictions and let the peso float freely (or with minor political interventions), as mentioned in the introduction the Argentine peso has been on a wild ride the last years Macri’s government.
How does exchange rates affect you when travelling to Argentina?
When traveling in Argentina the depreciation of the Argentine peso will usually mean that your currency will be worth more, i.e. you will be able to buy the same Argentine pesos (or stuff in pesos) for a small amount of your own currency.
This means, of course, that traveling in Argentina will become cheaper for you.
How does exchange rates affect you when living in Argentina?
If you are earning your salary in another currency (usually, USD or Euro) or living on your savings in another currency, exchange rate fluctuations will have the same effect on you as if you were traveling: your currency will make it possible for you to buy more stuff in Argentine peso than before the depreciation.
However, if you are living in Argentina on a salary in Argentine pesos, the depreciation of the peso will, as explained above, mean that your salary will be
Tips on managing exchange rate fluctuationwhen in Argentina
- Don’t carry too many Argentine pesos – only take out/exchange the amount of money you will need
- Check the current exchange rate at ambito.com which gives you both the official exchange rate and the unofficial.
- Take some time to track down the best exchange rate in the exchange offices – they vary quite a lot!
- Mind that there are both official and unofficial exchange rate offices. Beforehand, the unofficial would have better rates but this is not always the case nowadays.
- Bring US dollars if possible – the demand is usually higher, and hence you will get a better rate.
Are you aware of the situation of the currency exchanges of the countries that you travel to? Did you know about the situation of the currency exchange rate in Argentina before reading this post? Did you find the post useful? Please let me know what you think by dropping your comment below!