Argentine Peso Collapses in Parallel Market as Devaluation Rumors Spread

The price of the Argentine peso collapsed against the dollar in parallel market transactions, with false rumors spreading about the Central Bank's intention to take a decision to float the currency and reduce its official value.

And the price of the dollar at the end of yesterday's dealings in the parallel market reached 455 pesos, which is much higher than the official price, which records 219 pesos to the dollar.

The parallel market refers to the transactions that take place through the Blue Chip Swap mechanism, which refers to the most stable and safe securities in the local market or preferred shares linked to powerful entities.

The Blue Chip Swap is a legal mechanism in Argentina, through which a US dollar-denominated security is purchased at home, those securities are transferred abroad and then sold in dollars.

These transactions are usually associated with a realized loss for the local buyer, but they guarantee him a hedge in the event of an expectation of a greater decline in the price of the local currency.

The purchase and sale of these securities results in an “implied exchange rate,” even if this rate is inaccurate and does not comply with the definition of the exchange rate, because the buyer of the dollar-denominated security is obligated to keep it for 5 working days, a period during which fundamental changes may occur in the official exchange market.

Today, the Argentine brokerage firm, "Max Capital Valores", deeply apologized for its involvement in spreading false information about the imminent official devaluation of the currency.

“We deeply regret that we inadvertently participated in spreading an unsubstantiated rumor that does not represent the institutional opinion of Max Capital Group,” the company said in a statement.

It added, “The disclosure of that information to local and foreign clients was the result of an involuntary mistake on the part of an employee of the company, who was acting on his own behalf based on false rumors.”

Argentine Economy Minister Sergio Massa categorically denied market speculation that President Alberto Fernandez would resign and that the government would devalue its currency.