Friday, March 22, 2013

Argentina's Blue Dollar

As I mentioned yesterday, Argentina is famous for their steaks because they have a lot of grazing land for cattle raising. As a result of eating all this beef, they also have a lot of leather goods.

My father's been looking for a new jacket for quite some time - especially since his current heavy jacket is from 2001 and has an interior lining so shredded up that he can't even donate it to a homeless shelter.

So when he came across one of those trendy collarless motorcycle jackets in one of the ubiquitous Buenos Aires leather stores, he was intrigued and tried it on. It fit like a glove in the torso, but his abnormally short arms (28") made him look like I do when I try on my parents' clothes.

When he asked the salesman how much the jacket cost, he was quoted 4,500 Argentine pesos or $600 USD. But since they having a sale, they would knock off 20% if he paid cash or 15% if credit card. As much as he loves using credit cards, the 5% difference using cash was too much to pass up.

So for paying cash, he would get the jacket for 3,600 ARS or $480 USD. This was before the VAT refund he could claim at the airport for another 17% off (bringing the price down to 2,988 ARS or $398 USD).

Since my father was a Mathlete in high school (lame!), he ignored the discount part and was quick to point out that $4,500 ARS was $900 USD, not $600. Was the leather salesman trying to trick my father into thinking it was going to cost less in USD so he could close the sale?

The salesman told him that he was using the exchange rate of 7.5 ARS per 1 USD. My father knew for a fact that the banks/ATM machines were giving him just 5 ARS per dollar. Despite the incomprehensible debate in my father's stale high school Spanish, the salesman was adamant that the rate was 7.5 to 1. To put this back and forth to an end, my father tried to use logic to force the salesman into conceding his argument.

"So if I give you $480 USD cash right now, you'll give me the jacket?"


Well, now my father was convinced that the man really thought the exchange rate was 7.5. Well apparently it is and it isn't. (See the insert from today's Wall Street Journal)

The government, banks and financial markets are all using 5.1 ARS to 1 USD as the official exchange rate. However, the severe economic concerns among the local Argentina people around their currency being devalued (as a result of inflation) has created a very strong black market demand for US Dollars.

As a result of the wide spread (but quiet) panic, the local merchants and vendors are all willing to give an exchange rate upwards of 7.5-8+ ARS to hoard dollars rather than accumulate more pesos. This "blue dollar" market is now quoting 8.44-8.75 ARS for 1 USD as of March 21.

So now, my father's got a conundrum. He was willing to pay 4,500 ARS for the jacket if he could get the 20% cash discount and the additional 17% VAT refund bringing down the cost to just under 3,000 ARS. So if he used his ATM to withdraw the money, he'd effectively be only getting 5 ARS/1 USD, thereby paying $600 USD net after every discount and refund. $600 USD for a really high quality leather jacket was a good price.

However, if he could somehow get his hands on enough USD cash, he could save $200 USD! And even someone with horrible math skills can realize that $400 was an even better price than $600.

Original Price:  4,500 ARS ($900 USD or $600 Blue USD)
Less 20% cash discount:  -900 ARS
Discounted Price:  3,600 ARS ($720 USD or $480 Blue USD)
Less: 17% VAT Refund:  -612 ARS
Final Net Price:  2,988 ARS ($598 USD or $398 Blue USD)

Suddenly, the 3,000 ARS price tag didn't seem as attractive as it did 5 minutes before he figured all this Blue Dollar stuff out.

But all this currency exchange rate stuff overlooks the real questions that my father should be asking himself, "Do you really think your lame self can pull this look off?" or "Does this overpriced jacket make my already round face look more fat?"

UPDATE:  My father ended up not buying the jacket. He decided it was too expensive a purchase and would rather save their money for something more important.

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