The Gresham Law He said “bad money displaces good money.” Formerly, gold coins (good money) saved, while the rest of the metals (bad money) were used in everyday transactions.
Under a scheme of coin competitionlike the one that the president intends to carry out, the question emerges if the dollar will finally move to the peso, understanding here its use for even the most common transactions such as the payment of purchases in the greengrocer, or if the peso, product of orthodoxy Monetary, wins its place as a reserve of value in Argentina. The truth is that, at this level of interest rates in pesos, the exchange rate seems forced to generate a Catch up and liquefy a bit of this stock of pesos, which according to rates accrue, interest broadly their amount.
Argentina has a long history of devaluations, defaults, seizures of deposits, whitish, blends, etc. Our financial irresponsibility has led to society as a whole, to see “weight” as a merely transactional currency, but not as a reserve of value. That is, the company saves in dollars and spends on pesos. In other words “bad money” (the peso), displaces “good money” (the dollar), which saves and invests.
However, the Government states that the weight will be transformed into the strong currency and that Argentines must “spit” the dollars to make transactions, since this monetary appreciation scheme came to stay. In other words, The president seeks that the weight becomes “good money.”
The question we should ask ourselves is how do we take care of our savings?
The answer is many times simpler than it seems. To understand how to protect our capital, we must think about the goal we have. For example, if the final destination of my savings are vacations abroad, the best way to save is to invest in dollarized vehicles that allow me to eliminate exchange risk and obtain an income forms, time goes up to these vacations.
If instead, it is buying a car, we must understand, that they usually adjust to the devaluation rhythm, so place our money in an asset “dollar Linked” takes care of the capital. This same exercise can be repeated for each particular case, even if it is simply sought that savings protect future consumption, since the money can be placed at the rate or indexed assets to the closed index to cover inflation.
The question is, can Milei turn the weight into the new “gold”?
While it is true that the exit of the stocks is key that it is prompt, although ordered, the stability of the medium or long term is not subject to the immediate success of the lifting of exchange restrictions, but to the economic stabilization plan, where it is clear that The recovery of the competitiveness of local businesses will not only be given by a rise in the exchange rate, but also by a gradual decrease of taxes, as public spending is attached.
Milei was clear that it seeks to reduce public spending to 25% of GDP, but this reduction must be accompanied by the provinces that will be subject to a severe fiscal competence regime.
Short -term, seeking dollar cover seems a wise decision if the president is believed, which was clear to indicate that they seek to lift the stocks in the first four -month period, and that given by the potential closure of the new agreement with the IMF, added to The convergence of inflation at levels of 1 and peak percent, seems very possible to perform the long -awaited exchange unification.
So seek exchange rate coverage for a period not exceeding three months, has an acceptable opportunity cost in view of once ordered the macro to take out the calculator again and see that we pond more in our portfolio, if the Cary in pesos or dollar rate. It is always good to have a mix, but today we should start closing Carry positions and increase exposure to the exchange rate.
Bull Road Investments Co-Founder
Source: Ambito
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