It sounds pompous, but the “crawling peg” that the Central Bank will apply starting this Wednesday on the official dollar is nothing more than a progressive and controlled rise of the currency that Argentines have already seen on other occasions. The strange thing is that the dollar has been frozen for 3 months in a country with an inflation of 142% year-on-year.
He “crawling peg”, in practice, allows gradual and predefined adjustments to the exchange rate. On the one hand, it gives flexibility to move the value of a currency, but within certain established limitsavoiding sudden fluctuations.
In the current context, it is sought avoid a stronger devaluation, as happened on August 14, when the dollar soared 20% in one day and, consequently, there was a jump in prices.
Now, the Ministry of Economy has already reported that the idea is that, after being frozen for 90 days, the official dollar rises 3% between this Wednesday when it went from $350 to $353, to $360 until the end of November. Then it would advance but below inflation, which has a floor of 10% for November.
The term “Crawling peg” literally means “sliding exchange rate” or “trailed exchange rate.” The term “crawling” refers to a gradual adjustment, while “peg” means “to fix” or “to bind.”
In short, the “crawling peg” is an exchange rate system that allows the currency adjust gradually in relation to other foreign currencies (in the Argentine case, the dollar), within established limits.
On previous occasions, with this system the dollar could rise or fall, depending on whether the Central Bank decided to accompany inflation or revalue the peso by delaying the exchange rate. But most likely in the future just go up and the only thing that changes is the rhythm.
If the Central Bank seeks to prevent it from rising, has to sell the dollars that companies and banks demand in the wholesale market, because it is currently practically the only supplier and even more so now that the “export dollar” ends at $520. But since there are not enough reserves, the Government chose to close the tap on importers.
The post first appeared on www.clarin.com