By Ho Jung Min
Lionel Messi. The name obviously speaks for itself. He is recognized as the best soccer player in the world and rated by some commentators, coaches and players as the greatest footballer of all time. He is an Argentine soccer player who plays as a forward for the Argentina national team and for FC Barcelona in the Spanish league. Even the people who are not football fans know who Messi is. He is a living legend and the pride of Argentina, and now he even has a currency named after him. Here, you might wonder, what does Messi have to do with finance? It all goes back to the term, “Messi Dollar”.
What is the “Messi Dollar”? The term “Messi Dollar” is an informal dollar, referring to the jersey number 10 of Lionel Messi. As the new high of the blue dollar in Argentina (aka black market dollar) approaches the number 10, it was named “Messi Dollar”. According to the press release from central bank of Argentina, the official exchange rate is 5.22 pesos a dollar, but the black-market price is 10.8 pesos a dollar, which is nearly twice the price of the official rate. The difference between these two prices was approximately 93%, the largest gap since 1975. The exchange escalation is a clear reflection of a mismatch in the economy and a crisis of confidence
In response to the widening gap, the official action was to implement tough restrictions on the sale of foreign currency for saving or real estate transactions, baptized “Exchange trap”, and limit imports at the expense of angering the country’s trading partners. Experts claim that the excessive government intervention in the foreign exchange market contributed to the drop in the value of the peso. Since October of 2011, the government increased its intervention in the foreign exchange market to stop the dollar from going into the overseas market. In an attempt to curb capital flight, Argentina’s president, Fernandez in July banned Argentines from buying dollars except for travel and the country’s tax agency must approve any foreign exchange purchase. However, Argentines are buying dollars through the black market, or through the blue-chip swap, a process where investors buy securities locally and sell them in the U.S., because of the limited investment alternatives to shield pesos from inflation. The central bank’s administered devaluation of the official rate has weakened the peso 15 percent over the last 12 months.
The peso in the official market is forecast to weaken 10 percent by year-end, according to 16 economists surveyed by Bloomberg, the biggest decline in the world. Still, the gap with the parallel exchange rates signals the peso is at least 90 percent overvalued. According to the INDEC, “the dollar under the bed” is estimated to accumulate up to 170 billion dollar, which accounts for 40% of Argentina’s GDP. There is no way knowing if these dollars will come out under the bed, and when Argentina will regain its long delayed balance.