Unfree exchange

INFLATION and capital flight have steadily eroded the value of Argentina’s peso since Cristina Fernández de Kirchner was inaugurated as the country’s president in 2007. Back then one peso bought 32 American cents; today it trades for just 24, despite the central bank’s recent efforts to prop it up. Long accustomed to currency crises, Argentines buy big-ticket items like homes and cars exclusively in American dollars, and instinctively race to buy greenbacks at the first sign of economic trouble. Fresh off her resounding re-election last month, Ms Fernández now seems to be pre-emptively stopping them from trying.

On October 31st the government began requiring exchange houses and banks, who could previously conduct individual transactions with little oversight, to submit their clients’ tax-identification numbers online to the federal tax agency for approval. It deployed 4,400 inspectors to money-changers across the country to enforce the rule.

Officially, the restriction is aimed at fighting money-laundering. “Those who have their accounts in order should remain calm,” said Amado Boudou, the economy minister and vice-president elect. “Those who engage in shady manoeuvres should be very nervous.”

But in practice it is ensnaring everyone. Some operators simply closed shop, saying they needed to process the new regulations or were not clear about how to implement them. The exchange houses that did remain open drew queues up to two hours long. Yet most people who lined up waited in vain: so far, around 70% of requests have been declined, including many from individuals who had declared assets to the tax authorities far in excess of the amounts they sought to swap. If the government hoped to strengthen the peso, it has accomplished just the opposite. Fearful that they would lose their access to foreign currency, investors poured into Argentina’s dollar-denominated bonds and dumped their peso-denominated equivalents.

These difficulties could well be simple temporary nuisances while the new system is implemented. Even if Ms Fernández seriously intends to limit access to foreign currency, she will probably backtrack if the policy causes an uproar. But the fact that it will now take a mere presidential whim to stop most citizens from changing money will make already-nervous Argentines even more jittery. Ms Fernández needs only to look at Venezuela, whose capital controls have led to shortages and corruption, to witness the consequences of such intervention.