ContableIA: Understanding Argentina's Economics

Note: BCRA — official BNA selling rate (daily). Blue dollar rate from market aggregators. Both series taken from Evolution of exchange rate Peso/Usd graph click here | Consumer Price Index and Exchange Rates Comparison (Blue and Official Dollar vs Peso)

Formula: (Blue Dollar – Official Rate) / Official Rate — expressed as a percentage (e.g. 0.80 = 80% gap).

Detailed Explanation:

Argentina has maintained a formal exchange rate set by the BCRA (reported as the BNA selling rate) alongside an informal parallel rate known as the dólar blue. The gap between them arises when capital controls (cepo cambiario) prevent economic agents from freely converting pesos to dollars at the official rate. When the gap widens, it signals that the official rate is overvalued relative to market expectations, creating incentives to under-invoice exports and over-invoice imports in order to capture the spread.

• Gap near zero: Markets consider the official rate credible; capital controls are either absent or irrelevant.
• Gap 40–80%: Moderate stress. Typical of election years or periods of controlled crawling-peg depreciation.
• Gap above 100%: Severe distortion. Historically associated with pre-devaluation pressure, export retention and capital flight. Argentina reached gaps above 150% in late 2022 and mid-2023.

Purpose of the chart: The gap is one of the most watched indicators of exchange rate stress in Argentina. A persistently wide gap signals repressed devaluation pressure and deteriorating confidence in the official rate. Its compression — visible at the right-hand edge of the chart after the December 2023 devaluation and partial lifting of capital controls — is typically interpreted as a sign of improved external credibility.

How it is calculated: Both series are expressed as month-on-month percentage changes. The depreciation line is the monthly change of the end-of-month official BNA exchange rate. The inflation line is the monthly change of the national CPI published by INDEC (base December 2016 = 100). The two series are overlaid on the same axis.

Detailed Explanation:

Exchange-rate pass-through (ERPT) describes how much of a nominal devaluation ends up reflected in domestic consumer prices. A pass-through coefficient of 1 means a 10% devaluation eventually produces 10% more inflation; a coefficient of 0.3 means only 3 percentage points of that depreciation reach the consumer basket.

• Depreciation line (red): Monthly percentage change of the official peso/USD exchange rate. Positive values mean the peso lost value against the dollar that month.
• Inflation line (blue): Monthly percentage change of the national CPI. Reflects the actual price increase experienced by Argentine consumers.
• Lines move together (high pass-through): Typical of large abrupt devaluations — December 2015 (Macri), April 2018 (run on the peso), August 2019 (PASO), August 2023 (post-primary devaluation), December 2023 (Milei shock devaluation). In each episode a sharp spike in the red line is followed within one to three months by a spike in the blue line.
• Lines diverge (low pass-through): Under a crawling-peg regime (2020–2023 cepo period) the official rate was depreciated in small controlled steps while inflation ran persistently higher — the lines crossed with inflation above depreciation, reflecting suppressed exchange-rate adjustment.

Purpose of the chart: This chart helps identify whether exchange rate policy is actively transmitting to prices or whether inflation is driven by other factors (monetary expansion, inertia, indexation). Note that the chart uses only the official rate — during periods of exchange controls the blue-dollar rate depreciated much faster, so the true imported-inflation pressure visible to households was larger than this chart suggests.

Formula: M3 (end-of-quarter, millions ARS) / Nominal GDP (same quarter, millions ARS)

Detailed Explanation:

The M3-to-GDP ratio — sometimes called monetisation depth or the monetary overhang indicator — answers the question: how large is the money supply relative to the size of the economy? In a stable low-inflation economy this ratio tends to be fairly constant over time. In Argentina it is a useful real-time signal of whether money creation is outpacing economic output.

• M3 (Broad Money Supply): The widest measure of money in circulation, including cash held by the public, demand and time deposits in pesos, special accounts, and foreign currency deposits converted to pesos. Published monthly by the BCRA.
• Nominal GDP: Total value of goods and services produced in Argentina in a quarter at current prices, published quarterly by INDEC. M3 is resampled to end-of-quarter to align both series.
• Rising ratio: Money supply is growing faster than nominal GDP. In Argentina's context this more often signals that monetary financing of the fiscal deficit is creating excess liquidity which, if not sterilised, eventually spills into inflation.
• Falling ratio: Either nominal GDP (inflation × real output) is growing faster than M3, or the BCRA is successfully contracting the money supply through sterilisation instruments (LELIQs, pases). A sharp fall can also reflect a sudden loss of confidence in peso-denominated assets and currency substitution (dollarisation).

Purpose of the chart: Argentina's ratio is structurally low by international standards — typically 0.10–0.25 — because decades of high inflation have discouraged peso savings and compressed financial intermediation. For reference: Brazil ~0.80, Chile ~0.70, Eurozone ~1.20. A lower ratio means monetary policy transmits less through the banking system and more through direct inflation and exchange-rate channels.

Formula: Gross International Reserves (USD) / [Monetary Base (ARS) ÷ Official Rate (ARS/USD)] — both expressed in USD so they are directly comparable.

Detailed Explanation:

This is a convertibility coverage ratio: it asks how many dollars the BCRA holds in gross reserves for every dollar-equivalent of monetary base it has issued. A ratio of 1.0 means full backing — every peso in circulation could in theory be redeemed at the current official rate.

• Gross International Reserves: Liquid external assets including USD cash, gold, SDRs, swap lines with China's central bank, and credit balances with international organizations. Note that these are gross figures — they include encumbered assets that cannot freely be used for intervention.
• Monetary Base: Currency in circulation plus bank reserves held at the BCRA. This is the narrowest and most directly controlled monetary aggregate, converted to USD at the official rate to make it comparable to reserves.
• Ratio above 1.0: Over-backed base. Gives the BCRA room to defend the exchange rate. Seen briefly after the 2018 IMF programme began injecting reserves.
• Ratio 0.3–0.7 (typical range): Partial backing. The peso is implicitly supported by BCRA credibility and capital controls rather than hard reserves. Exchange-rate stability is policy-dependent.
• Ratio approaching zero: Critical zone. In 2023 net reserves turned negative — gross reserves were committed to swap lines and other obligations — making the ratio appear misleadingly adequate. Always watch the absolute reserve level alongside this ratio.

Purpose of the chart: During the Convertibility period (1991 to 2001) Argentina legally required the monetary base to be 100% backed by reserves, a ratio of 1.0 by law. The collapse of that regime in 2001,2002 illustrates why a falling coverage ratio is watched closely as an early-warning indicator of currency stress. Important caveat: the chart uses gross reserves, which overstate true coverage. Net reserves (gross minus liquid liabilities such as the Chinese swap line) were deeply negative for much of 2022,2023.