The Blue Dollar Economy
In Argentina, the markets are ruled by a financial fantasy.
OCTOBER 3, 2023
“As soon as an Argentine has a peso to spare, they will trade it for dollars,” Ariel said. “They know dollars will always increase in price, and people go mad for them.”
Ariel, who asked that I withhold his last name, works in the illegal currency trade known as the “blue market” — a phrase commonly used in Argentina to refer to the illicit exchange of Argentine pesos (ARS), the local currency, for U.S. dollars (USD).
Every day, Ariel handles dozens of clients seeking to buy and sell “blue dollars.” He tends to start work when financial markets open in the morning and sometimes ends well after midnight. When the pandemic interrupted his work as an importer of leather goods, he began to work as an arbolito, or “little tree” — a term originally used to describe those who managed clandestine horse-race betting. Ariel oversees a group of 20 arbolitos who travel back and forth from different spots across Buenos Aires, trading dollars, hoping to make a profit by the day’s end.
Argentines own 10 percent of the U.S. dollar bills in global circulation: $200 billion, or $4,400 per capita, which is higher than the $3,083 average per capita for U.S. residents. The key word here is “bills,” as most Argentines have not recovered from the traumatic events of the 2001 financial crisis, when the government froze bank accounts, blocking people’s access to deposits and leaving most to choose liquid cash over investment.
The current economic situation in Argentina is dire: Year-over-year inflation is at 115 percent, and the peso is under constant depreciation. The unemployment rate sits at 7 percent, while almost 40 percent of the country’s population lives in poverty. Soup kitchens and community centers are overwhelmed with demand from working families who, although formally employed, nevertheless need aid to feed their children. Meanwhile, Argentina owes $44 billion to the International Monetary Fund, which in 2018 handed the country the biggest loan package the lending institution had ever given. This has cast a shadow on the country’s future. In addition to imposing payment deadlines of billions of dollars despite the country’s low central bank reserves, the economic program mandated by the IMF aims to cut down on spending, including welfare funding, nationwide.
Forecasts are negative, by all standards, as the country prepares for election season. Inflation, devaluation and the widening gap between the official and illegal dollar are daily headlines — while the blue dollar was at ARS 758 by the end of September, the official stood at ARS 365.
The dollar is at the center of far-right libertarian economist and presidential candidate Javier Milei’s platform. He promises to eliminate the peso, which he says has been rendered useless, and adopt the dollar as Argentina’s main currency. His supporters, desperate for solutions, deposit their dreams of financial wellness into dollarization. Meanwhile, experts from different perspectives, even conservative or traditional economists across the world argue that dollarizing the Argentine economy would make things worse. Eccentric promises, however, win out over arguments. Milei won the August primaries with a 30 percent share of the vote, a reflection of social discontent. The dollar represents a fantasy, whereas reality is much more painful.
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Over the last decade, an underground market for dollars has spread across the country, and today getting hold of blue dollars is as easy as buying any other good. Government caps intended to contain demand for the dollar have only increased public appetite for cash. Although there are a few large blue dollar vendors, most are smaller-scale underground operations like Ariel’s. The exchange rate of pesos to blue dollars is fixed by supply and demand, minute by minute. Now and then, the government sends police raids to break up illegal exchange houses. These locations, called cuevas (“caves”), are not listed on Google Maps; they’re usually located in private offices or hidden behind the façades of newspaper stands, coffee shops, internet cafés and payment agencies. Word-of-mouth keeps customers coming, and discretion on both sides (the seller fearing government exposure, the buyer fearing getting hijacked) secures illicit transactions.
When the blue dollar spikes, prices go up; yet when it decreases, prices never go back down to where they were.
The dollars themselves, Ariel said, come from several sources: bills hidden in people’s apartments or kept inside bank security boxes, large incomes in pesos that clients exchange into dollars to keep their value, operations by businesses both large and small. Money jumps back and forth from the formal system to the informal one, as Ariel receives wires to and from his local and foreign bank accounts — and also works with piles of physical bills every day.
It’s a volatile business. “On some days, you can wake up rich and go to bed poor,” Ariel said, “but the challenge is buying cheap and selling expensive.”
Arbolitos like Ariel have no trouble attracting buyers. In 2019, shortly after Argentina agreed to the IMF loan, the Mauricio Macri government imposed a $200 cap on the amount of U.S. currency a person could purchase from the country’s central bank each month, greatly restricting an earlier limit of $10,000. Since then, several policies have limited who is allowed to trade to that official rate. The harder it becomes to access a legal dollar, the more expensive informal dollars become.
But the blue dollar is not the only informal market. There are many other markets and exchange rates, most tailored according to specific needs. All claim to be temporary at first, but most have persisted, becoming their own alternative economies. The tourist dollar, for example, is a rate that’s sold only to tourists coming to Argentina. The Qatar dollar was invented for Argentines traveling to see the national football team compete in the 2022 World Cup; and it stayed afterwards to be used for tourism in general. The soybean dollar is aimed at agribusiness, for exporters to trade when they sell their crops. The list goes on.
Still, if citizens want to keep the value of their money, the blue market is the best bet. Chatbots, Twitter accounts and even large media outlets broadcast the real-time prices of the blue market so that people can understand the economic situation and manage their funds accordingly. Although most people find it hard to save money by buying illegal dollars, the price can still help predict economic flows: When the blue dollar spikes, prices go up; yet when it decreases, prices never go back down to where they were.
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With such a variable and sensitive market, it is part of Ariel’s job to build trust. His clients range from big business owners to old people who wait for him at their apartments with coffee and biscuits.
“It’s word-of-mouth,” he said. “They know we deliver.”
Ariel described one recent drama, sparked when the U.S. redesigned its paper money. Some old dollar bills, purchased and then stashed under the mattress for a long time, were rendered useless by local markets, even though they were still equally valuable in the U.S. and abroad. Today most real estate offices will not accept cara chica dollars (“small face,” a reference to the smaller portraits on older bills) for transactions, or will only accept them for less than their full price. For instance, a recently issued $100 bill will be, in effect, worth $100, while an older $100 bill will be worth $95 or less. Thus, the trust traders like Ariel create with clients is built on an endless cycle of instability.
Although Argentines still use pesos on a daily basis — salaries, goods and services are all set in pesos — the depreciation of the currency means it is not a good way to maintain value over time. “The dollar started to replace the peso in specific uses,” said Alejandro Gaggero, an economic sociologist from the National University of San Martín. “Because of the instability of our currency, most people save their money in dollars, which, in a way, worsens the economic situation in our country.”
The peso-to-dollar pipeline goes like this: A person earns their salary in the formal circuit, paying taxes and making deposits in their bank account. Then that person extracts money from the formal circuit to buy informal bills, which are kept outside of the banking system — “stored-under-the-mattress dollars,” as they are commonly known, hidden around the house. While my mother and I packed up my grandparents’ house a few years ago, we would find old, hardened $20, $50 and $100 bills tucked inside board game boxes, between books and in drawers. They didn’t add up to much, but I could imagine my grandfather, a son of Armenian immigrants who fled the genocide and arrived with nothing, stashing them obsessively. At a larger scale, when large businesses decide to illegally convert their pesos to dollars, the government is missing out on valuable tax money and the formal economy on valuable activity.
The dollar has been crucial to the Argentine economy for almost a century. The first currency policies were implemented in the 1930s: An exchange rate for the dollar was set by the Argentine government, and the Exchange Control Commission was created to supervise foreign currency transactions. The government intervened in the exports and imports sector.
With time, exchange rates and access to dollar bills became a social thermometer. A 1996 Federal Reserve report showed that Argentina’s hyperinflation between the 1970s and 1980s led to the dollar becoming the agreed-upon medium for exchange for large-scale transactions like houses and cars, a tradition that continues today. Those who can afford to, the report continued, hold dollars as “an instantly liquid form of insurance” in case of economic upheaval.
Privatizing policies and internal market deregulation during the ’90s led to an economic fiction.
In the aftermath of a violent seven-year-long military dictatorship that dismantled the economy and society, leaving a sum of 30,000 disappeared people and an uncountable number of victims, the fantasy of owning dollars became part of Argentina’s self-reinvention. The dictatorship and the governments that succeeded it opened up the country’s economy, sold state-owned companies, sought loans from the IMF and joined the globalization dream led by the U.S.
The fantasy of holding dollars spilled into popular culture. In 1981, Diego Maradona, the country’s legendary soccer player, was bought in dollars by his club. That same year, the artist Marta Minujín hosted a “dollar party,” where people mockingly sang songs to the dollar, dressed in dollar-themed outfits and raffled off dollar bills. During the ’70s and ’80s, newspapers were full of reports about how the dollar spikes were affecting Argentines psychologically, and films, comedy shows and literature showcased how people gathered outside of the exchange houses to look at the dollar prices, how old ladies would buy dollars straight away once they got their pension every month, how patients would show up in sexologists’ clinics, their desire dampened by the financial crisis.
Privatizing policies and internal market deregulation during the ’90s led to an economic fiction: Dollars allowed members of the fragile middle class to travel to dreamy destinations like Disney World, or on lavish cruises that took them from the Caribbean to Brazil in just a few days. They bought their kids Barbies and imported sneakers. While half of society collapsed in poverty and hunger, members of the upper classes focused on how many dollars they could hoard. For eleven years, the peso and the dollar were pegged to each other: One peso equaled one dollar. The bubble burst in 2001, leading to one of the country’s worst crises.
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Past efforts to regulate the dollar in Argentina have not been successful. In their book The Dollar: How the US Dollar Became a Popular Currency in Argentina, Ariel Wilkis and Mariana Luzzi point out that in 2012, when the blue dollar flourished after the establishment of government-imposed caps, some believed that purchasing dollars would be a rational decision to make a profit. But others were likely just copying their peers. No matter the motive, between 2012 and 2023, as the purchasing power of local salaries has decreased significantly, the tradition of buying dollars has only continued.
Verónica Stewart, an English teacher, wakes up at dawn and travels back and forth between the two schools she works for in Buenos Aires. She tutors during the evenings. She buys dollars whenever she has money to spare, like many upper-middle-class workers. She said it’s just what she’s always done.
“I’ve historically saved in dollars because my family used to do so, too,” she said. “It’s money that I know won’t get depreciated, and that I won’t be able to spend, because I can’t pay for everyday things with USD here.”
Gaggero, the economic sociologist, said he believes that as long as the peso is not stabilized, people will continue to turn to the blue market, taking money out of circulation in the formal system. “As a government, even if you ban the illegal dollar, if people are turning to it massively, the measure won’t be enough,” he said. “The blue dollar has become a part of our everyday repertoire: It’s a part of political speech, of economic decisions — even when it’s illegal, it’s legitimate for the largest part of the population.”
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Outside the campaign headquarters where the far-right presidential candidate Milei and his team awaited the results of the primaries on Aug. 13, as yet unaware of their sweeping victory, his supporters repeated a single word: “dollars.” Their candidate lacks a political agenda, has no structure to govern the nation, plans to privatize public education and public health institutions, but offers what traditional politics have failed to provide: a promise that they will be able to access dollars thanks to the abolishment of caps and a gradual dollarization of the local economy. His plan for this has been laid out several times, always differently. Research centers have defined the scenarios he describes as “nonviable” due to the current lack of central bank reserves and the implications the plan would have on people’s bank savings, as well as the IMF debt.
Dollarization of the Argentine economy, which appeared an eccentric wish only a few months ago, now dominates media headlines and dinner table discussions and has become a subject of academic research.
Meanwhile, the blue dollar is everywhere — it comes up in small talk, blinks at the top of every news site, has its price announced on TV and radio every hour, just like the weather forecast. It even chimes on my phone. On Aug. 1, it cost ARS 552 in the morning, ARS 557 at 11:51 a.m., ARS 554 at 11:53, then went back down to ARS 557 at 12:59 p.m. It was ARS 558 as we slept. The blue dollar dropped midday on Aug. 2 to ARS 560 and closed at ARS 558 in the afternoon. The “Dólar Blue - Cotización” chatbot (one of many of its kind) was there to report it all, broadcasting the real-time rates of the blue dollar to its more than 18,000 subscribers on Telegram, one of many sources of up-to-the-minute information amid an ongoing economic crisis.
The day after the primaries, when Milei scored 30 percent of the vote, some arbolitos, Ariel said, were selling each dollar for ARS 850. Dollarization of the Argentine economy, which appeared an eccentric wish only a few months ago, now dominates media headlines and dinner table discussions and has become a subject of academic research.
By the final round of edits for this article, the blue dollar stood at ARS 758. Ariel said the desire for the big-faced bills has only increased over the past weeks. “Just like it always has, since before we were all born, the dollar business is there and always will be,” he said. He expressed skepticism that Milei’s pledges will succeed, making U.S. dollars an easier asset to access formally and rendering his business useless, because Argentina does not have enough money to back up such a plan. “Time will tell,” Ariel said, “but what he promises seems totally unfeasible.” The country will hold its general election on Oct. 22. Chatbots, for the moment, remain as busy as ever.