Dollar: cash and blue cash advance at the rate of increase in the amount of pesos in circulation

From the imposition of a strict exchange control last October 28, with a limit for private demand of USD 200 per month, the evolution of dollar prices began to dissociate, the formal circuit on the one hand and the alternatives, alien to the “stocks” on the other.

Since then, the “blue” dollar and stock exchange rates increased in the last semester in a range of 42% to 55%, a rate that goes hand in hand with the expansion of the number of pesos on the street, to a rate of 47% in the last semester.

From October 28, 2019 to April 27, both the number of notes and coins held by the public and the broader aspect of money in circulation (which adds up to cash in banks) increased by 47 percent.

The amount of notes and coins grew in the period about $ 375,000 million or 47%, from $ 795,814 million to $ 1,171,020 million. By including banknotes and coins in entities, the increase in monetary circulation rises to $ 423,000 million or 46%, from $ 920,941 million to $ 1,344,268 million.

A report from Idesa (Argentine Institute for Social Development) specified that between November 2019 and March 2020 the money supply (cash, checking accounts and savings accounts) increased at a rate of $ 193,000 million per month, while only in April 2020 the supply monetary expansion by another 464,000 million pesos.

In the same period, the international reserves of the Central Bank that support the pesos remained almost constant, around USD 44,000 million.

“These data show that the monetary issue had been increasing significantly before isolation. With people confined and economic activity stopped, the rate of monetary issue more than doubled. Most of this massive issuance is not due to an increase in reserves -which remain constant- but to cover the fiscal deficit, “highlighted the Idesa report.

“This led to the implicit convertibility value of pesos to the dollar – assuming that all available money is poured into its purchase – exceeds $ 110. This is the benchmark that financial operators look at and that led the parallel dollar to rise to almost $ 120, “added the consultant who directs Jorge Colina.

The Economist Martín Tetaz he explained: “With the increase in circulation on the streets and the scarce supply of foreign currency, all versions of the parallel dollar – legal and illegal – were negotiated above 110 pesos”.

“In some way, the supply constraint in the parallel operated as a trigger for the validation of the 46% jump in circulation since November, due to the sum of the seasonal increase in the money supply at the end of the year – which was never absorbed, when the season passed- and the extra $ 100 billion for the ‘COVID-19 effect’ ”.

At the same time, with an official dollar that rises 11.6% in 2020, the exchange gap jumped to the highest level since controls began changes in October, above 70% between the formal and parallel markets.