Last time I was talking about “Why Argentinians Save in Bitcoin and How Covid-19 affected Peso?” and promised to be back with more insights on the local economical environment. This time I will dig a little bit deeper to show you how the “Broken Economy” works and share my observations on free money in Argentina. Of course, the story would not be completed without our good friends: US dollar cash and crypto (particularly the lord Bitcoin).
To be honest, I started writing this article a while ago, and before I could publish, the government introduced a new (additional!) 35% tax effective immediately. I decided to pause the publication to add some more updates as it goes. So let me start with original content to cover the basics of Argentinian Peso and share the changes along the way.
Before we start, let me cover again the basic thing that makes all free money loopholes happening: the difference in exchange rates. At the moment there’re 3 different exchange rates:
- official rate,
- blue dollar,
- financial dollar
The largest gap used to be between the financial dollar and the official rate, lately, due to the new government regulations of financial markets, this rate went slightly down. As for now, the highest rate that you can obtain in Argentina is a blue dollar rate that is 70–75% larger than the official rate (now 90% and this difference reached ~123% in October). Before the pandemic, the best rate that I could get as a foreigner was through Western Union since it used financial dollar rate and it was higher than the blue dollar. Now my best choice would be to sell dollar cash or cryptocurrency at the OTC.
Earn in dollars spend in pesos. That what people always keep in mind here.
DISCLAIMER: Please note that some of the cases can apply arbitrage trading that can be considered an illegal activity in some countries. This article does not recommend and motivates you to do any of the mentioned transactions. This article only contains information and facts about the local system loopholes.
I mentioned already that before newly-updated government regulations, Western Union could have given you the highest rate you could have obtained here as a foreigner.
Example from the end of March 2020. You send money from, let’s say, Russia to Argentina. You send RUB 5,000 with an exchange rate of 1.1127 against 0.79 as the official rate says. That’s already a 41% premium on top of what you’re sending. You get here ARS 5,563 instead of ARS 3,950 that you were supposed to get according to the official rate. “But that’s just a premium, where’re the earnings?” as you are thinking now. You take your ARS 5,563 and go to the OTC market to buy crypto. Bitcoin was at the market at that time for around a 30% premium as well. Meaning that you can already earn around 10–11%. Then in Russia, you can sell Bitcoin at an extra premium of 1–2% (now the premium is negative: -1.5–2.5%) as well and cash-out money back to RUB to repeat the whole hustle again. This is a pure arbitrage that imposes a return with 0 risks.
The new regulations removed this opportunity from the market in such an easy way. However, there are still arbitrage options available, just will take slightly longer to find and benefit from them.
So before these new regulatory changes, you could come here with your dollars at a bank account and withdraw them through Western Union. Today it’s better to come with dollars cash as you will get a better rate. If you have some cryptocurrencies like Bitcoin, Ethereum, USDT, etc. you can also change them quickly into peso at a blue dollar rate. The brokers used to give a positive premium on top of the exchange rate so it was the highest rate you could get here for some period of time. Now the premium is negative (1.5–2.5%), meaning that dollar cash is the best option to go with. The exchange rate difference between crypto and dollar cash is not that big though.
A Bank Trick
This won’t earn you a fortune, but since I’m putting down all the local tricks, it’s still good to mention.
You need: ARS and 1 local.
Go to a bank with your local friend who didn’t buy any dollars this month. Ask him to buy dollars for you. You buy dollars at the official rate +30% tax: get $200, paid ~ARS 18,900. Then you go to the OTC and sell these dollars for pesos at 70–75% premium: pay $200, get ~26,000. Enjoy the difference (ARS 7,100) and repeat next month.
Benefit: simple & fast return of 37–40%.
Drawbacks: you can only buy $200 per month at the bank due to the law.
Have you ever heard rich people get richer during a crisis? It’s the exact case I will be covering here, but you don’t need to be necessarily rich. If you’re local and your earnings are in dollars, you should have such a magic thing as an Argentinian credit card.
Argentinian Peso is continuing to depreciate against US$. How do you win here?
- A credit card in Argentinian Peso
- Earnings in US$
What do you do?
You’re buying all your groceries, clothes, other expenses with your magic credit card. Majority of the shops will provide you with quotas (it’s installment payments when you can pay for your purchases in a few payments during the next 3–12 months). The most common will be 3 quotas for 3 months, meaning that you will pay 1/3 of the total amount once a month without any additional interest! Some stores can offer you 12 quotas and some can even offer you quotas when you start paying in 1–3 months. Why is it so good? Let’s say you buy a pair of shoes that cost 12,000 pesos that is ~$140 at the official rate and $100 at the blue dollar rate (with the rate of $1–120 pesos). Next month peso dropped and the blue dollar became 140 pesos for $1. Your purchase already became $85 instead of $100.
From September to October, the blue dollar rate was growing a lot because of the newly introduced 35% tax that increased the demand for the US$ at the “black market.” It went from 120 and reached 190 at some moment. People were buying all the luxury items like clothes, shoes, cars, bikes as they became the same price or even cheaper than in Europe and the US. If you have ever been to Argentina, you should remember that all imported items here were nearly twice more expensive than abroad (because of the tax). For the first time, the situation changed completely and made everything extremely cheap here for people earning in dollars.
Some of the prices started growing as well that causes a lot of complications for people earning in peso. New regulations are meant to support the poor, but they are turning out to favour the rich. The cryptocurrency market was one of the most impressive in Argentina that I’ve ever seen. People believe that this is the way they can protect themselves not only from the unstable and depreciating peso but also from sudden and unpredictable government regulations. Argentinians feel confident to have something that you can have control over and feel secure that no government will suddenly decide to freeze your savings as they cannot get access to it. Learning more about the crises that the country went through, you have no such question as “why everyone knows about the cryptocurrency?” or “why do people like cryptocurrency here?”. It becomes quite an obvious thing.
As usual, I’m trying to keep the content short and hope that this was a good insight into the Argentinian peso-dollar-crypto relations.