The Argentina Government Plays a US Dollar Con Game

Running out of US dollar reserves, the increasingly desperate regime of Argentina President Cristina Fernandez de Kirchner plans to tap on the US dollars held by their informal economy by issuing US dollar based IOUs

From Bloomberg: (bold mine)

President Cristina Fernandez de Kirchner’s wish of being able to print dollars is coming true as the central bank begins issuing dollar-denominated certificates today that trade in pesos.

Argentina is issuing the certificates, known as Cedines, as part of a tax amnesty plan to attract undeclared cash back into the economy. The nation’s foreign reserves have fallen at the fastest pace in more than a decade to a six-year low of $37.2 billion, as Argentina uses the money to pay debt instead of borrowing dollars at interest rates that are more than double the 5.95 percent average in emerging markets.

Fernandez, who said last year that it was unfortunate she didn’t have a “little machine” to print dollars, is trying to tap some of the estimated $160 billion held by Argentines under mattresses or in bank accounts abroad, to ease dollar demand stoked by more than 30 measures that she has imposed since 2011 to restrict access to foreign currency. While the measure is designed to provide individuals dollar-backed claims that can be used for real estate and energy projects, Empiria Consultores says Argentines will just exchange them back for U.S. currency.

More from the same article:

The reference value for every $100 of Cedines, is 90 for purchase and 93 for sale, for an implied exchange rate of 7.2 pesos per dollar, according to a recently created website called Cedin Trading.

That rate would be weaker than the official rate of 5.3903 and stronger than the black market where Argentines pay as much as 8 per dollar. A fourth rate used for financial transactions by swapping bonds and stocks was 7.8257 at 4:26 p.m. in Buenos Aires….

Fernandez is seeking to reverse a rout in property transactions after her ban on buying foreign currency almost paralyzed the dollar-based market.

Undeclared dollars can also be traded for a government-issued bond maturing in 2016 that will pay a 4 percent annual interest rate that will be used to finance the energy industry and state-run YPF SA.

First the Argentine government prevents her constituents from transacting in US dollars, so the public kept them outside of the grasp of the government and from the government controlled banking system.

Now that such confiscatory policies has backfired, the Kirchner regime hopes to usurp people’s savings held in foreign currency via unfunded US dollar based IOUs or certificates which is why this program looks like a sting or a con game.

Yet Argentina’s fiscal intemperance will only mean higher inflation and economic stagnation ahead.

As Simon Black of the Sovereign Man expounds: (bold mine)

Inflation here is completely out of control. The government figures say 10%, but the street level is several times that.

Curiously, even Cristina acknowledges that prices are way too high. But rather than rein in spending and stop the money printing, she’s digging her high heels in even further by launching a new clothing line.

This new brand– NYP (Nacional Y Popular) will be owned and run by the government, selling everything from jeans to shirts to shoes at prices below 100 pesos (less than $20 officially).

In every instance, they just keep going further down the rabbit hole of more government control, more central planning. It’s like living inside the pages of Atlas Shrugged.

In a world where capital seems to be shrinking as evidenced by the ongoing bond market rout, the global governments appear as likely to increasingly resort to political, economic and financial repression measures in order to fulfill the whims of their political leaders and to preserve the status quo or the privileges of the political class.

Developments in Argentina and Venezuela seem as the proverbial writing on the wall.