“Cambio dollars cambio…”

On Calle Florida, the arbolitos are out in force. They are the public face of the blue dollar market – an exchange so ubiquitous, so open, and so important to the local economy, you could almost forget that it is illegal.

The blue dollar is unique: an unofficial currency bourse with the outward appearance of a legitimate exchange. The impression is supported by web sites and stories in the press covering daily fluctuations. Many cuevas – informal exchange houses – even have fixed addresses and business cards.

But it is still a black market, and the inner workings are opaque. If your local cambio tells you that the rate rose ten cents since yesterday – why did it rise? And why ten cents, instead of five? Or fifteen?

Is the blue dollar rate a matter of straightforward economics or is the entire market stage-managed by a criminal conspiracy?

“Supply and demand,” people speculate, but since there is no central exchange, no single individual can ever know the available supply, or demand, on any given day. Even Cabinet Chief Jorge Capitanich recently challenged newspapers that publish the daily blue rate to include information on traders and volume. “If they can’t do it,” he concluded “then it is not transparent and doesn’t constitute a market.” When a chief government minister calls for greater accountability in the black market, you know there is a problem.

Yet thousands of blue transactions do occur, every day. Many are initiated by tourists, or Argentines planning to travel, or protecting their savings against inflation. (There is a reason that the waiting list for safe deposit boxes in Buenos Aires is now over a year.) Others are by businesses making deals or skirting taxes. Each transaction begins with the same question: What is the rate today?

I had a different set of questions: Who sets the rate? How do they do it? Who loses and who, if anyone, is making a fortune?

The Independent Operator

Pablo puts down his wine glass with an appreciative sigh.

He is balding, a husband and father, in every way the image of a hardworking businessman. Instead of socks, or train cars of wheat, Pablo buys and sells money. That day, he had already crossed the city twice, meeting with customers and refilling his backpack with stacks of cash.

Pablo is a tall step above the action in the street. No need to trek down to Microcentro – he will meet you in your favorite cafe and give you a higher rate than the arbolitos or your local cueva. Not by much but, since he will not venture out for less than US$600, the difference will be enough to matter.

Talking to Pablo was my first peek behind the Blue Dollar curtain into the mechanism within. He gave up his last real job in late 2011, when President Cristina Fernández de Kirchner tightened currency controls and, overnight, turned a small side business into a thriving new industry.

Over his first coffee of the day, Pablo checks DolarBlue.net. Not because he will offer their rate, but because his clients will have checked before calling and he may need to manage expectations.


DolarBlue’s success has been phenomenal. Since they opened, in 2011, every moneychanger, broker and tourist checks the site to learn about the latest blue market happenings.

In my imagination, there was a back room filled with accountants in green eyeshades, like in the old movies, picking up phones and shouting numbers across the desks. The truth is simpler, smarter and less relevant.

The Blue, or Paralelo, rate, is based on stock prices in the US and Argentina, and calculated entirely by algorithm. The process is untouched by human hands, and therefore beyond anyone’s ability to rig for personal gain. [See sidebar for a full explanation.] Think of it as the pure rate from which all other rates descend.

And there are plenty of other rates. There are rates described by color (Gray, Celeste), by city (Miami, Colonia), a rate for savings and another for soy exports.

The myriad of rates highlights a quandary of Argentina’s currency underground. Most illegal markets, such as drugs (everyone’s favorite comparison) are closed systems that work on a simple supply-and-demand basis. Every pot smoker knows that when supply goes down, the price goes up

How Dolar BlueThe blue dollar – as we shall see – responds chiefly to demand stimulated by economics and government policy. However, since the blue is also directly tied to the international stock market, and affects exports and other basics of the economy, it is, as any Argentine will tell you, a bit more complicated.

DolarBlue.Net does not take these intricacies into account when calculating the basic Blue (Paralelo) rate, which is the reason that you will never receive that rate, nor even the supposed street prices that they list. It does, however, provide a useful guide to the overall movement of the market. The alternative rates for wholesalers and cuevas adjust by a few centavos, but are still merely figures on a web site, and do not affect actual transactions.

Which leaves the question: if DolarBlue does not set Pablo’s rate, who does?

The Role of Wholesalers

His first call of the morning is to his wholesalers, known as mayoristas, to check their rates on a few thousand dollars or a few hundred thousand pesos. These are the numbers that matter, and even among wholesalers, the rate may vary a few centavos from one to the next.. “I call two or three wholesalers. Usually, I buy where they give me the best price, but if that is across town, I might buy closer to save time, even if it costs a bit more.”

Sometimes, a customer will balk, holding out for a higher rate because they saw it on the web. “But I have to make a profit,” Pablo says, “or there is no point. They are not taking the risk, I am. If a tourist is caught, nothing will happen to them. I could be in big trouble.”

He certainly could. In December, 2011, the Senate passed a law designating unofficial buying or selling foreign currency as an act of terrorism, punishable by up to eight years in prison. Crackdowns are rare, but they happen. For one entire week during September, the arbolitos were absent from Calle de Florida. Now, they are back, because business must go on, and they work almost entirely on commission.

Most of Pablo’s clients are Argentines who call, each month, to buy dollars with whatever they have been able to keep from their monthly paycheck. Unlike a dealer in other substances, he offers a valuable service – protecting their hard-earned savings against inflation.

Was he getting rich? To hear Pablo tell it, no. He works long hours, six days per week, to provide for his family. Trade is good, for now, but you never knew when it would change. When the government allowed limited dollar purchases in January, 2014, he was afraid for a few weeks. “It turned out that it did not affect business much at all,” he said. “They made it too difficult to get dollars legally, and then the government knows that you have them.”

And if the government knows that you have dollars, the government can take them away, as they did during the default of 2001 – still a painful memory for many people who saw their life savings replaced by pesos which immediately began to lose value. This is another reason that citizens turn to the blue market for dollars – it is more expensive than dealing with the government, but easier and, in the long run, possibly safer.

The High-End Operation

“I would prefer to do everything by the book – that way you sleep easier at night. But they’ve made it impossible with these excessive controls.”

I met Diego (not his real name) downtown, mid-morning, at a cafe on Sarmiento. Over coffee and toast – enough, he says, to get him through the day – Diego speaks openly about the blue dollar, lowering his tone when he mentions the ‘parallel market’ by name.

Cambio, he tells me, is not his true profession. He runs a legitimate financial company and trading dollars is an additional service for trusted clients and friends seeking to park savings in hard currency and out of AFIP’s reach, whether in or out of the country. (“A lot of money heads to Miami.”)

Diego’s operation is yet another step up in scale and sophistication. At his office, in a modern glass tower, the receptionist calls you by name. Large amounts, or uncommon currencies, are no problem. If you need cash discreetly transferred from an overseas bank account, also no problem. Or if you have surplus pesos, you could drop off a bundle and the equivalent will appear as dollars in New York, or euros in Paris, three days later.

After some small talk, Diego reveals that his office handles around US$200K to 300K in currency exchanges per day. It is serious money, yet D. still considers his operation to be relatively small in a market that he estimates to move some US$15M daily. “I’m not interested in growing much bigger, because that’s when they will come looking for you. It’s better to remain small, so nobody bothers you and you don’t get pulled into anything dodgy.

For the same reason, he serves mainly Argentines protecting their savings, and does not accept business from strangers bringing large quantities from abroad or if they cannot explain the origin. “Those who get greedy and try and do too much will end up in legal trouble sooner or later. Everyone has to reach an agreement with the police, but if the gendarmerie come, they will turn your office upside down and take everything.”

Even at his level, Diego has a currency broker that provides a reference rate for daily transactions. There are ten to fifteen of these brokers, who operate in both the official and parallel markets, and each may offer a slightly different rate depending on which group of wholesalers they supply. The brokers, known as corredores de cambio, can connect him with a wholesaler if he needs dollars to meet short-term demand on any given day.

Diego assumes that most of the illegal dollars are imported by the banks, themselves. I am curious to learn more, but he is either unable or unwilling to explore further. We have been talking for over an hour, and it is time to go.

Knowns and Unknowns

My next stops were an attorney and a real estate agent, both active players in the blue dollar market who, without prompting, echoed many of Diego’s points.

First – because of restrictions, most companies cut corners, whether underreporting income, paying employees en negro, or a thousand other tricks that make sense when confronted with complicated regulations shot through with loopholes and corruption. Police and inspectors are easily persuaded to turn a blind eye. The existence of an alternate currency, accepted everywhere, makes this even easier.

Second – the government, at some level, condones and regulates the blue market. It is obvious that they cannot eliminate it – currency controls do not stop the demand for dollars, only drive it underground. The government closes down a few cuevas now and then, but the Blue Dollar is too important to squeeze too tightly. Without a fluid source of hard currency, exports, savings and tourism would all take a hit.

The greater the gap between official and blue rates, the more pressure it puts on the legal economy. For instance, soy farmers refused to sell at the official rate earlier this year and held out for a better deal. Real estate brokers in Recoleta and Puerto Madera are giving steep discounts for dollars. When the government cannot eliminate it, nor intervene officially, the thinking goes, they attempt to regulate via other means.

Third – The blue chip swap rate, or contado con liqui, may not be as well known as the Blue, but it is critically important to the workings of the market. This is the rate at which businesses can buy dollar-denominated bonds in pesos, then sell them on international stock exchanges for dollars, which they get to keep. It is a legal method to convert large amounts of pesos to dollars, many of which find their way back to Argentina off the books, or as payment for imports. It is also a means for the government to exert downward pressure on the rate.

Lastly – the chinos. Every person interviewed is certain that the Chinese supermarkets are among the largest players in the market, converting the huge volume of pesos received to pay debts, or send dollars home, or save. In 2012, Alejandro Bercovich, writing in Diario BAE, estimated that the chinos purchased up to US$10M per day. Could my contacts show proof of these claims? None that I saw. Which does not make it false, either.

A Moment in the Market

At ** PM, on *** , October ***, a crack investigative team checked rates at various change operations around the city. Here is what we found:

DolarBlue – Paralelo – Venta:   AR$ ***

Large Operation (US$ 1,000) ***

Cueva (Recoleta) (US$ 1,000) ***

Moneychanger #1 (US$ 1,000) ***

Moneychanger #2 (US$ 1,000) ***

Arbolito #1 (US$ 1,000) ***

Arbolito #2 (US$ 1,000) ***

Arbolito #1 (US$ 100) ***

Arbolito #2 (US$ 100) ***

[Add commentary on the findings above, once they are known.]

Is the Blue Market Really Black?

In a standard market, money is money. Whether you carry a briefcase of crisp hundreds into a bank in New York, or a sack filled with small bills into a branch in Nebraska, the deposit to your account will look exactly the same. The commodity (money) has a single value (the amount printed on the bill). It is all just placeholders for digits in a computer, anyways.

Not so in Argentina. New Franklins will always command a better rate than old, wilted twenties and tens, which are more of a problem to move or to pass along. Likewise, tourists short on pesos in Patagonia, or the far North, will receive an unpleasant shock if they are used to rates in Capital Federal. One money changer I visited in a small southern town looked up the official rate, then the blue rate, then split the difference. I refused. He shrugged. When you are the only game in town, you can set the terms, regardless of rates on DolarBlue.Net or stock prices in New York.

There is another difference. Most contraband in the world stays contraband – a kilo of cocaine will always be cocaine.

In Argentina, converting illegal currency into legal cash is so common that there is a verb for it: blanquear. Blue dollars find many creative ways to go legit, then return to the country as oversized bundles of pesos – a good business for those with the starting capital and connections.

The blue market may be used for above-ground activities, such as travel and savings, and have the trappings of legitimacy, but the more one looks, the more it appears to work like a traditional black market.

Los Corredores de Cambio

While researching this article, every conversation eventually circled around to the same place: the corredores. The number is always the same – around a dozen, perhaps a few more. Their job is to keep tabs on the need for dollars, and the amount available, and connect the two sides where necessary.

Each has a distinct market serving different wholesalers, and the prices between them may vary slightly. Taken together, they are a series of mini-markets that form a single overlapping market. In Buenos Aires, they all converge in Microcentro, where the competition effectively regulates prices.

So, in a way, the supposition that the rate is a matter of supply vs. demand, is correct. Instead of a computerized exchange, the corredores are where the two meet, providing a reference rate for large – as in large – amounts. From there, brokers and wholesalers set the rate they think they can get, depending on volume, geography and day.

This, then, is the answer. No single person, organisation or exchange sets the actual rates. Instead, the dozen or so corredores keep tabs on demand in their separate sub-markets and continually adjust the rates to wholesalers to keep dollars and profit flowing.

Wholesalers continually communicate rates to their downstream networks of cuevas and arbolitos, who have some leeway, but are constrained by local competition.

In the big picture, the rate rises and falls in response to demand, inflation fears and changing government policies. There are many other external factors, also, of which two of the most important are the blue chip swap rate (contado con liqui) and occasional government crackdowns to keep the cuevas in line.

At every level of the market, it pays to shop around. It pays even more to be one of the big players. Out of the entire structure, the group in the best position to take advantage of the blue market is not the guys working the street; it is the banks and large institutions who are legally entitled to move money in pesos and dollars, and have countless ways to make extra dollars and keep them off the books.

In a difficult economy, the blue dollar has become an inadvertent growth industry, a primary source of income for, presumably, thousands of people. Pablo, Diego and legions of arbolitos are in no danger of the market disappearing any time soon.

*** Stay tuned for a truly satisfying ending, coming shortly.

What Drives The Blue Rate?

blue graph










A brief glance at the graph shows that something curious is afoot. The official rate has shown a slow upward trend, with one big cliff in late January. The blue looks more like the foothills near Bariloche. How can one the official rate stay so serene while the blue has become untethered?

Let’s return, for a moment, to the basics: The Blue Dollar exists because Argentines want a commodity which they cannot purchase legally, except under heavy restrictions. This is where all black markets, from dollars to drugs, get their start.

The official rate is an artificial setting reflecting the administration’s priorities while avoiding a complete economic crash or starting a revolution. Along with benefits, there are side effects – distortion of the economy and the problem of foreign reserves, among others.

The blue rate is a complicated amalgam of economic forces. An interesting paper from early 2014 , from the University of Mississippi, employed a statistical model to break down the blue rate into its component parts (restrictive government policies, seasonal variations, etc.) controlling for all other factors. According to this analysis, the author calculates that the first 4.6% of the brecha is a risk premium: the cost of operating in an illegal market.

Another 56% of the gap, by the same method, is the result of five government policies issued between May, 2012 and April, 2013. [See sidebar]policies

Add another 8% to account for the strength of the dollar worldwide. (This is the amount that the dollar has risen against the euro in the last three months. By contrast, the official rate has only risen 4% against the dollar over the same period, a signal of active rate management.)

For tourists changing money on the street, our quick survey shows that **% of their rate is a result of using the lower end of the market.

This still leaves more than 30%, much of which will be due to pessimism over the economy, the specter of high inflation, and new policies.

The Contado Con Liqui (Blue Chip Swap) rate, as noted above, is another check on the Blue Rate. This rate connects to the real world, since it is set by bond sellers and is used in actual transactions on a daily basis. Many observers see this as one of the main channels for government influence on the blue market. If the paralelo rate rises too high, government-associated organizations could sell more bonds, depressing the price and injecting more dollars into the market.

There is one more factor: speculation. Typically, people buy dollars for investment, travel, business deals, or to hide income from AFIP. However, if the Blue Dolar is on a tear, people will convert pesos to dollars as a speculative move, pushing the rate still higher. The Casa Rosada apparently sees the same issue. Jorge Capitanich spent part of his daily press conference on October 1st reproaching speculators and promising action against them.

Critically, one item that does not seem to affect the rate, in any assessment, is supply. Scarcity does not appear to be playing a part. Whether the dollars come from big banks, as Diego suggested, or money parked offshore by rich Argentines, the amount in circulation always seems adequate to meet demand.