Argentina Shuffle Spurs Bets New Exchange System to Weaken Peso

The Argentine peso is falling in a market used to wager on future currency values after Axel Kicillof’s promotion to economy minister fueled bets the country will create a foreign exchange system with multiple rates.

Three-month non-deliverable forwards have plunged 4.9 percent to 7.16 per dollar since Nov. 18, when presidential spokesman Alfredo Scoccimarro announced Kicillof’s appointment as part of cabinet changes. With the official rate at 6.0461, the forwards market indicates that traders are wagering the peso will fall about 16 percent in three months. In the illegal currency market used to skirt controls, the rate is 9.93 pesos per dollar, according to data compiled by newspaper Ambito.

The likelihood Argentina will designate exchange rates that differ based on the transaction has jumped with the promotion of Kicillof, who as deputy economy minister supported President Cristina Fernandez de Kirchner’s ban on dollar purchases for savings and import restrictions, according to a report yesterday by HSBC Holdings Plc. That may mean a weaker exchange rate for financial-industry transactions, which the forwards market tracks, according to Ezequiel Aguirre, a currency strategist at Bank of America Corp.

“Multiple FX means that there’s a higher probability of a new and higher ‘financial’ exchange rate,” Aguirre said in an e-mailed response to questions.

Implied yields on the three-month forwards, or the interest investors pay to lock in an exchange-rate to sell pesos in the future, have surged 19 percentage points since the announcement to 72.21 percent, according to data compiled by Bloomberg.

Cabinet Shuffle

Fernandez named Kicillof to replace Hernan Lorenzino on the first day that she resumed duties after a five-week medical leave. She also appointed a new central bank president, cabinet chief and agriculture minister.

Trading in non-deliverable forwards, or NDF contracts, began in the early 1990s and allowed companies and investors to reduce their currency risk in developing nations where capital controls limited foreign-exchange transactions, according to a 2005 report by the Federal Reserve Bank of New York.

The contracts allow investors to sell the dollar for currencies such as the Argentine peso at an agreed-upon exchange rate. They make a profit if the peso in the spot market is stronger than the pre-determined rate when the contract expires. The contracts are settled in dollars.

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