José Nogueira, ABC Mercado de Cambios: "Dólar, libertad o dependencia"

Good afternoon, good afternoon. Thank you for the invitation and the presence of all of you, of course. The topic related to currency exchange in its two forms—the physical banknote and the transfer between checking accounts—is quite broad and complex, of course, to explain in a few minutes. But in the Argentina we live in, where the value of the dollar has become a permanent concern, I think it's worth leaving you with a summarized but clear information that will help you better understand the topic and know what needs to be done so that we can all access a better future.

That is why I will refer to this topic using images and texts that will facilitate understanding and reflect the need for change. Additionally, you will have a clear understanding of the existing differences with the system that governs today in Argentina, the exchange system, of course, based on isolation, controls, and policies imposed with authoritarianism and arrogance. Look, the international foreign exchange market is the largest in the world. It is a market that has had constant growth and sophistication, using fantastic technology and increasing efficiency. A huge volume of transactions—we'll see this later—it has extreme permanent liquidity, a great variety of participants, a geographical dispersion of the exchange market, it operates 24 hours a day, every day except weekends. Here they take a break. And it has strong volatility of exchange rates. This is the workplace of the traders in this market, with fantastic technology, communication and information technology. Above all, traders have to be informed instantly of what is happening in the world today, and thanks to the growth of technology, they can do it. Traders today know what is happening with the quotations of all currencies in real time.

Today, in the international market, well, in the civilized world, the system of floating exchange rates prevails since the 1970s. Exchange rates move freely; they are consequences of decisions made freely. The volatility of exchange rates is very high, but it is less than the variations of stock prices, commodities, and interest rates. Central banks can intervene in markets when the exchange rate is driven by situations unrelated to the fundamentals of the economy. The exchange rate in the world moves according to what happens with the economy and according to what happens with politics. Today, since around the year 2000, central banks have stopped intervening in markets because—you will see—in a market that moves such a huge amount of money every day, it is impossible for a central bank to twist or change expectations and what is happening in a market. So today what exists is called occasional active intervention; central banks can occasionally intervene at a very special moment, as the Swiss central bank did recently, which removed its floor of about 20 Swiss francs per dollar and had to remove it because the market—the dollar had fallen so much or had risen—the movements the dollar made were terrible in recent times, and the Swiss central bank removed it and let its currency depreciate, like almost all the currencies in the world.

Look, one day in the international exchange market between the dollar and the euro—this happened last Thursday, so it's very fresh—look at the movement it had. When the Asian market ended, the dollar had risen from 70 to 1.250 euros, a 1.7% increase in a short time, when interest rates in the world are practically at zero. Then it fell 0.9% to 1.1153, then rose again to about 1.217, all this in the timeframe of April 30. Then it fell again 0.9% to about 1.118, then rose a bit, then rose more, and then ended up falling. This is the exchange risk we face every day, a terrible risk. So everyone in that market, especially those in foreign trade, always take out exchange insurance, that is, they try to cover their exchange risk for all operations.

The exchange rate in the world moves according to the economic data that becomes known, because the speculative market is permanently betting on what will happen. The market is no longer interested in what happened yesterday; the market is always betting on what will happen in economic matters, political matters, especially economic matters, because political problems, although they exist, are not as many, fortunately only in some specific places. So, if the economic data that appears every day in the world matches what the market expects, nothing happens. But if they come out different from what is expected, there is an immediate adjustment in the quotations. That is, the same speculative market produces the equilibrium that the currency must have according to economic data and according to politics.

Ah, sorry. What mainly affects the exchange market are these data: the value of interest rates, employment, industrial production, trade balance, manufacturing activity, consumer spending. This is what the market is fundamentally looking at every day, what happens in each country to adjust the currency accordingly. The flexible exchange rates that govern the world today are independent of monetary policies. They stabilize automatically because the market stabilizes them. The advantages: their movements respond to the market and not to government decisions. The ability to quickly correct changes in economic conditions is total. I can assure you that this movement we just saw is habitual, and it always ends up balancing the market, not unbalancing it. The market becomes unbalanced by the mistakes that governments make in economic matters, which sometimes have serious problems solving them, or the political problems they create.

Without exchange rate policy—exchange rate policy does not exist in the world; what exists is monetary policy. Without exchange rate policies, governments can more freely focus on internal and external equilibria by implementing more expansive monetary policies to stimulate the economy and recover external competitiveness, and more restrictive ones to clean it up. There is no other way. We, of course, have never done this. And today no one talks about this, politicians least of all; they don't understand how this works. I can assure you.

Let's look at the current scenario. Well, this is the Argentine peso, the single and free exchange market that was created in 2002, which is neither single nor free, of course, because immediately they implemented tremendous things. Let's follow it there. It's an electronic exchange market that doesn't exist anywhere else in the world. The world market moves by the direct relationship of traders via telephone or also via the internet, but there is no market where the exchange rate appears, nor the operations being made. In Argentina, they forced this so that the Central Bank could have information instantly on all operations in the market and could manage itself as it does, as we will see later. That is, it is the only country that has absolute control of what is done in the market. The lack of a real and active money market—we have no money market in Argentina, we have no price of money. The interest rate is fixed as they want, it has nothing to do with the real value of the currency.

An exchange rate policy with a single purpose: to fix the exchange rate without explicit guidelines or objectives. Permanent presence of the Central Bank in the market, operating in the market, buying and selling to demonstrate the power it has at that moment and to prevent banks from speculating with the exchange rate. That is, it is permanently in the market, not only intervening in operations but also calling bank traders on the phone asking why are you buying? What are you doing? That's the exchange market in Argentina today. Interventions, well, the lack of precise, broad, and updated information from the Central Bank, we don't have real information in this regard. The restrictive hours of the market, as we know, the market is the only place in the world that has hours: from 10 to 3, and today only two hours. Why? Because every day we have to wait for the Central Bank to authorize the operations that have been presented, especially payment of imports, so that the market can function, and they only start to announce the Central Bank's resolutions at one in the afternoon, one-thirty, so the market is reduced to an hour and a half.

Well, the excessive exchange control, of course, the unfounded prohibition of forward operations—this is incredible. The forward operation in the international market is an operation that is already like a spot operation, but to be settled in the future. If I can buy dollars against pesos to be delivered in four months at an exchange rate set that day, the future exchange rate is the spot rate as a base plus or minus the difference in interest rates between the two currencies. Look at the madness it would be—well, the madness is to set a forward exchange rate. It is the spot rate plus an interest rate that does not exist, set by the Central Bank at 24, 19, 18, 12 percent, any nonsense. Not only that, but this operation is prohibited. The market is prohibited for a political problem, they told me at the Central Bank one day. That is, it is the classic operation of the international foreign exchange market, but in Argentina it cannot be done because they say that in 2003 some banks took advantage of this type of operation to evade, when the entire monetary policy change was made in Argentina.

And it has a very low volume of operations between banks, for that precise reason. We will see this too. Look, this is incredible. The market—we will talk about what the international market was like in total—but look, Mexico operates every day 32 billion dollars. 32 billion dollars. Brazil, 17 billion dollars. Chile—I can assure you that 20 years ago it was ten years behind us in this matter—operates 12 billion dollars per day. The new neighborhood they built in Santiago is called Manhattan, they named it Manhattan. Colombia, another that didn't exist, 3 billion dollars per day. Peru, 2 billion. Argentina, 270 million. This is a survey done by the bank every three years. This is the last one from 2013; next year is the next one. Today we are still operating at this average, even a little less, per day.

Well, look at what has happened in the last two years with all the major currencies of the world. The real, there it is. The euro fell, depreciated 20%. The pound, 2%—because the pound had a different movement, you see, it had a recovery. The rest of the currencies had as much recovery as the pound? The pound, only 2%. Don't forget that the pound is outside the European Union and has a fairly difficult movement, quite different from the euro in that aspect. The euro fell 22%. The Swiss franc, 2%. Why? Because as I told you at the beginning, when the Swiss Central Bank said we no longer have a floor for the Swiss franc and let it be set by the market, that's why it only had 2%.

Well, let's go to Latin America now. The real fell 47%. The Chilean peso, 30%. The Colombian peso, 30%. The Peruvian sol, 20%. What happened in Argentina? In Argentina, the peso has depreciated—this sometimes doesn't help us understand things well—because in Argentina it depreciated 72% if we don't take inflation into account, that would be absurd, but that's another topic. The depreciation, remember there was a devaluation in January 2014 of 23%, that's why we advanced; otherwise we would be much lower. Look at the difference with the world, nothing to do.

These are the dollars expected for December by some companies: Nomura 12.5, City 12, Santander 12, Banco Francés 11, speaking of 11, Pilla Constructores 02, Gold Sánchez 10.95, and Tabú. They hope that the peso can vary by the end of the year. The economist of Macri said that the directives from the first day that Mauricio set are to return inflation to a single digit and liberalize the exchange market. Macri's definition belongs and as of December 11 there is no more exchange control, and he says that dollars will be abundant in Argentina starting in December. I let the exchange rate float, but we will look for an equilibrium point that does not hurt the ally.

There is no 'seco'—who talks about 'seco'? Because we import, we remit profits, we pay external maturities, and we sell dollars to people who want dollars. They call it 'seco' to sell the dollar so that people sell it on the parallel market and earn 20%. All those who receive salaries, at the beginning of every month, buy dollars. Last month was the record again; I think we are close to 500 million dollars. People buy it to sell on the parallel market, and that's why the parallel market doesn't rise. A completely immoral act. That is, we are forcing people to commit an immoral act with their money, and yet they are so happy with that.

Well, also, proposing to end financial restrictions is to return to generating conditions for the country to generate another crisis. Those who say they will lift the exchange control on the first day of government, I want them to tell me how they will do it without causing a sharp drop in reserves. I ask, if you are not thinking of a mega-devaluation, gentlemen, if there is liberalization of the exchange market, you don't have to put a dollar of reserves in the market. Precisely, it is liberalized so that the market solves the problem, and demand doesn't require the Central Bank to put its dollars in reserves to maintain the dollar. That's why the market is liberalized. And then the economist of the team Daniel said: 'I would suspend the dollar savings; it only serves to take the Central Bank home to the middle class.' And if it's true, you have to wipe out with a stroke of the pen the withholdings on regional economies.

The president of the Budget and Finance Committee of the Chamber of Deputies assured that thanks to the times, on December 10 we will hand over the government in perfect conditions, and added: 'Whenever there was exchange freedom and dollars were lacking, as in 1989 and 2001-2002, the economy blew up.' Well, this is one of the results, of course. The latest Argentine trade balance from the first quarter of our... Look how imports and exports changed, and practically there is nothing to say; we have a surplus of 168 million. It no longer exists, well.

The evident current need of our country to grow again has as its most direct path the removal of the rigid exchange control established in early 2002, the adoption of measures aimed at opening up to international trade, and through this means to incentivize direct investment with projects fundamentally associated with exports. But it is also postponable to completely rethink the role of the public sector in the economy, substantially reducing its weight to promote a tax cut and the elimination of withholdings, with the purpose of increasing competitiveness and fostering private investment. For all this to happen, we need a foreign exchange market in Argentina under normal required conditions. First, it must be free, broad, and deep, that is, with many participants and permanent liquidity. In that sense, we will have to make a tremendous effort to convince ourselves that floating our peso in a scenario of full freedom is the only possible path to achieve the reactivation of our productive apparatus, increase our foreign trade, and ensure future growth. There should be no more exchange rate policies, and monetary policies will be responsible for achieving the necessary equilibria. Of course, the proposed objective of creating confidence in the new system must be accompanied by the recomposition of our financial system with a robust money market with realistic interest rates capable of attracting investors from here and abroad. Only then can we have the necessary stability so that people begin to bet on the future of our country.

This possibility allows us to build a foreign exchange market that can integrate into the global market to access all the currency products that have been created to enable our source of international financing and transfer the exchange risk derived from fluctuations in currency prices. In this last aspect, which is what I was telling you today, it is fundamental for the normal development of our businesses related to the trade of goods and services with the outside world. Definitely, as has already been decided in the civilized world, there is no doubt that the new path is dialogue, cooperation, and agreement. The classic concepts of sovereignty and independence have had to be changed for those of interrelation and interdependence, forever breaking with the archaic and now forbidden nationalist schemes of isolation with closed borders to live with what we have. And I finish: it has also become perfectly clear that today no country can decide economic or political measures that affect others without first obtaining the consensus of those others. We see this permanently in the international foreign exchange market because the things that happen always need the consensus of the rest of the countries; if not, it doesn't work. No country can do things alone today without the consensus of others. And now no one doubts that the true world is a world in which everything must be negotiated and that the practical solution of problems has always depended mostly on formal and informal discussions within governmental spheres. So, will we be prepared to compete? Thank you very much.