The central bank has taken these measures to protect their foreign reserves for better uses in the future. A positive impact of this decision can be that Argentina's exports will be relatively cheaper and that might increase the demand for their products in the global market. In the long run, if the economy recovers, and the currency appreciates, this decision would be looked at in a more positive light.
Thursday, January 23, 2014
Argentina Devaluation Sends Currency Tumbling Most in 12 Years
In most recent news, the value of the Argentina peso has dramatically diminished. The central bank has yet and does not intend to intervene. This intense fall of the peso's value against the value of the dollar has led many to worry about what is going to happen to Argentina's foreign-exchange reserves. The story does not really have anything positive to say about the outcome of the peso and Argentina's economy.
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As you said Argentina's dramatic drop in the value of the peso is something that could be beneficial for our country. Our goods and service trade with Argentina totaled 22 billion dollars in 2011 which is up 37% since 2002 according to the Office of the United States Trade Representative. Our biggest import with Argentina have been Minerals and Oil and if prices drop many Americans could save a lot of money. However besides trade benefits, it would not be good to see Argentina's economy suffer so severely.
ReplyDeleteInflation in Argentina has been running more than double the official rate at 25%. This alarming rate raises many problems. Argentinians are quickly exchanging pesos for products such as automobiles, houses, and other luxury appliances. Value from these assets will depreciate more slowly than Argentina's predicted inflation rate, gaining a greater value from these goods in the long run than just the peso itself. Lastly Argentinean produced products sold in the United States come at a lower price than buying the same product in Argentina. This is a major dilemma for Argentina manufactures because they are not able to gain optimal profits.
ReplyDeleteArgentines lack trust in the peso due to their government's debt default in 2002 and its recent decrease in value. Because of this, many are turning to the black market in order to exchange pesos for U.S. dollars, as they are banned from making the exchange legally. The price per dollar is 12.75 pesos on the black market versus just 7.99 in a legal exchange market. Argentina's large current account deficit is not going to be helped through the illegal exchange of pesos for U.S. dollars. Without some type of government intervention, Argentina could face another default.
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