A recurring concern among Argentiniean business people is related to the price of the dollar and whether it is the “adequate price”. This concern doesn’t have a single correct answer but, one way of looking at it, is through the Multilateral FX Index, obtained from the Central Bank of Argentina (BCRA). From this, we propose an additional and complementary vision, that consists in a graphic that shows the nominal and the theoretical dollar value at the end of each month, from April of 2002 up to date.
The presented analysis assumes that the dollar at the beginning of the series was an equilibrium price, meaning that it was correctly valued by the market. This assumption is based on the fact that after the liberation of the dollar price from the official “one-dollar-one-peso” value, and observing the rebound to four pesos per dollar, the currency stabilized at a three pesos per dollar price that seemed relatively consensual. Our analysis assumes that this equilibrium value was a good starting point.
From that value, we estimate the theoretical dollar price, inflation parity of the dollar and the peso of each month. According to this, the theoretical dollar at the end of each month is estimated by multiplying the spot price (pesos per usd) by one plus the inflation rate in pesos divided into one plus the inflation rate in usd. This value is represented by the orange coloured line in the graphic. The green line shows the value of the nominal dollar at the end of each month. Observing both series, we see that the exchange rate in Argentina is usually lagging behind the theoretical value, a phenomenon that is repeated constantly with governments of different political signs.
In the graph we can also see the series of the unofficial dollar, also called “blue”, of course represented by the blue line. An interesting fact is that it’s seen clearly that, when the dollar price delay is driven through market regulation, the blue price soars and separates from the theoretical dollar. Meanwhile, when the dollar price delay is achieved through monetary policies, leaving the market free to buy foreign exchange, the blue quotation and the nominal remain similar. The yellow line, measured on the right axis, represents the percent of the level of exchange rate delay at the end of each month.