BUENOS AIRES – It is common to hear people shouting “cambio, cambio, cambio” (“change” in Spanish) in thronged commercial streets in Buenos Aires to offer illegal currency exchange rates, right next to police officers.
These “arbolitos” (“little trees” in Spanish) say they trade money at the best black market rate. They stand in one spot and hail people all day.
As inflation is hitting hard Argentina, tourists, expatriates and Argentines alike are resorting to illicit means to change money at the most interesting rate. Because of the highly fluctuating peso, most residents save in U.S. dollars.
Fishy official figures by the national statistics agency (INDEC) estimated that consumer prices rose by 16.7% in July 2014 compared to the beginning of the year.
The reality is that INDEC tampers with inflation data. Analysts consider that inflation stands between 30% and 40% – one of the fastest inflation rates in the world. Some restaurants write their menus on a chalkboard because prices increase every month.
The Argentine peso has been a shaky currency since it was de-pegged from the U.S. dollar after the 2001-2002 economic crisis. The South American nation defaulted on its debt, thereby locking itself out of international financial markets.
Argentines then tried to withdraw their savings from banks all together. The government and financial institutions therefore restricted the amount of money Argentine residents can withdraw.
In 2012, the Central Bank barred anyone in the country from swapping pesos to hoard U.S. dollars, the hot commodity, so as to prevent capital flight and protect foreign reserves.
The worst kept secret
Argentina’s wobbly economy has thus prompted the creation of a black market with a separate exchange rate. The “blue dollar” rate stands at 13.2 pesos to one dollar – as of February 4, 2015 – compared with 8.5 pesos to the dollar – as of the same date.
Notwithstanding that authorities are turning a blind eye, changing money at the unofficial exchange rate is illegal in Argentina. A 1995 law stipulates that financial institutions conducting such activities will be fined or punished by one to four years of prison
Yet, this alternative exchange rate is so popular that daily newspapers, such as La Nacion, provide both exchange rates on their website. The blue dollar rate is also updated live online. It has a Twitter account – @DolarBlue – and its Facebook page has more than 31,000 followers.
Currency exchange has become such an obsession in this South American nation that Argentines openly ask foreigners living in the country what currency they get paid with and how they withdraw their money.
“This is crazy!” some would yell if you confess using your foreign credit card – charged with the official rate.
Why get 8 pesos when you can get 13 pesos?
To skirt the official currency rate, residents in Argentina go to a “cueva” (“cave” in Spanish), one of the thriving underground money exchange houses.
On the busy Florida street, some follow the “arbolitos” who usher customers in a shady apartment in a neighboring street to exchange money illegally at a better rate.
There, money launderers come and go to get U.S. dollars, euros or Argentine pesos. A man is usually sitting behind a desk, counting money quickly, in the back of the place.
“We want to enjoy our holidays to the fullest,” says a Brazilian tourist lining up in a humid room without window, waiting for his turn to change his Brazilian reals. “This is cheaper for us here,” he explains.
In case of a police crackdown, most of these caves look like fully functioning businesses. They are generally travel agencies that surprisingly attract many customers in time of economic slowdown.
Some of these illicit money exchange houses do big business by changing large sums of money for Argentines who work in the hospitality industry, for instance, and get paid in cash in U.S. dollars.
In one “cave” in the Microcentro neighborhood, people have to go through two double layer security doors with cameras to get in. The place is supposed to be a capital assistance company with a receptionist at the front desk.
There, money launderers have banknotes counters. People with large bags come in and out.
Companies like Mobile Wechselstube (“mobile exchange” in English) offer another means for Argentines and foreigners in particular to circumvent the government’s strict monetary policy. Holders of a foreign bank account get the amount of Argentine pesos they need delivered at the blue dollar rate.
Other residents in Argentina transfer money via Western Union from their bank account to one they opened in neighboring Uruguay. They then cross the river by ferry – it takes about one hour to travel from Buenos Aires to Montevideo – to withdraw their money in U.S. dollars.
“This is despairing but this is what I have to do,” says Gloria, an Argentine journalist who regularly travels across Latin America and hence needs to often change money.
This article was published in the April-June 2015 print edition of International Finance Magazine. Link here.
