More on currency, arbitrage, and XOOM (Updated)

So, I didn't know this before I got here, but the American dollar is a big deal here. As I wrote in my post "Money and Dogs", ATMs are widely available here and credit cards are pretty widely accepted here. Not as widely as in the US, but as always, I am comparing this to my experience in India, in which case, ATMs and credit cards might as well not have existed.

Anywho, let's see if I can structure this post a little better.

So, if you use a credit card here, and you're not from Argentina (como yo), through all the transaction processing and what not, the banks convert the bill from Argentine pesos to whatever currency is in your homeland and add that to your credit card bill in the currency of your homeland. With me so far? Same goes for withdrawing cash at an ATM.

A couple examples:

1. I go to a nice restaurant. Have a nice, juicy steak here, a great cut of meat right of the cow. They have good steak here. And good wine. So throw in a couple bottles of wine. Let's say the bill is $200 pesos. And let's say the bank rate (you can Google it, it shows up right in the search results, you don't have to click any links) is 5.8 pesos to 1 USD. So 200 pesos becomes $34.48. Throw in any fees, and that gets added to by credit card bill. Sweet. This is how it works in any country.*
2. I go to the ATM. I withdraw $500 pesos. Conversion, blah blah $86.21 USD is deducted from my bank account.

Still with me?

But, so, la gente de Argentina (the people of Argentina) expect their currency will face inflation in the short term. Which is probably will. That means, among other things, the Argentine peso will grow weaker against the US dollar. What would you rather have, a currency that holds it's value better or worse? Better, of course (this sounds like an AT&T commercial with that little kid focus group). So the Argentine people would rather have the US dollar**.

So why don't Argentine people just go buy a bunch of the US dollar as an investment? Well, as far as I can tell, they can't. Not directly, anyway. For example, some travellers I've met so far, not from Argentina, have made trips over to Montevideo (Uruguay, a wholly separate country for you ignorant Americans) to withdraw cash from the ATMs IN US DOLLARS! How neat! I wonder if they have Chick Fil A yet...but yeah, so what if an Argentinian tries to do this?? Womp womp. IT WON'T LET THEM! The system sees it's from Argentine bank/citizen and bam, DE-NIED.

And why not? I'm not sure, but I've been told by travellers that the Argentine government wants the Argentine peso to stabilize a bit better and they want to fight inflation. If everyone is running the USD, that makes it harder. Not sure about all this, though.

So what do Argentinians do instead? Buy it on the blue market/black market***. You'd think the blue market was run by Heisenberg. Anyways, it's most popular down on Avenida de Florida. In fact, it's the only place I've seen so much money changing going on so frequently and in such density. There are dudes lining this street for blocks, one on either side every 10-15 feet saying "Cambio! Cambio!" (obviously spanish for "change")****. At first I was wary of these guys. Were they going to give me change right there or take me into a back alley? Would they try and short me since I don't know the currency very well here? Would I get a good rate? It doesn't help my Spanish isn't perfect, either.

As it turns out, most of these guys are pretty legit. I can't speak to the illegit ones, nor really of the legit ones. I've never actually done a transaction with these guys. Though I've met some travellers who have. They say typically they take you to a nice, legit-looking office and you're fine. And they get 9-9.5 pesos per USD. WHICH IS WAY ABOVE THE BANK RATE. By how much, you ask? Do the math. (9.5-5.8)-5.8 = 63.8%. You're getting that many more pesos for each US dollar. AWESOME.

So, what if you're like me and only bring $200 USD with you to Argentina? That first $200 goes a long way. But after? There are two options I know of:

1. Go to Uruguay. You can take a ferry, withdraw USD there, and come back, and convert  at the best rate.
2. Use XOOM. It works just like Western Union but gives you a rate FAR higher than the bank rate. Just yesterday I got 8.34 pesos to every USD (43.8% better!!). You do pay a charge that increases with the amount sent. I paid $7.50. But depending on the charge and the amount you convert, you should still do better than 8 pesos per dollar. Yesterday I got 8.1 pesos to every dollar, so 39.66% better. Not sure if this is right, but I guess you could say that amounts to a 40% discount? Trev?
   
   Oh, and when I say it works like Western Union, you sign up, link a bank account or credit card (the fee is higher when paying by credit card), and send yourself money, then pick it up at a location in the city. BAM! Just needed my passport and gave them some info. Argentina is smart about it's AML (anti-money laundering) laws. Didn't have to wait too long, but a wait does mean the service is popular. Very smart on their part. Whenever the government creates a law, it may be creating a new and/or black market. Love it.

I imagine there are more ways than this. Probably other services similar to XOOM.

Moral of the story: if you're American, (or from somewhere where the currency is stronger than the Argentine peso) convert your money to pesos at a great rate and pay for everything with the peso. (This includes the Euro. The Euro is even stronger than the dollar here, but it is in general). You can often times just buy things outright at stores with the dollar, but do that only if you want to do the math every time. Kind of a headache. I met one guy who got 10 pesos to a USD, but that was in Patagonia, so a higher rate there where the USD is even less common makes sense.

*If you know differently, speak now or f*ck off.

**You have to understand, the US dollar, for better or for worse, is huge EVERYWHERE IN THE WHOLE WORLD. See this. The US dollar and US government treasury bonds are the equivalent of hiding your money under your mattress (NPR's Planet Money blog, not me).

***Concerning the currency market here on the streets, I've heard the terms "blue market rate" used and "black market". I imagine it's called the blue market because the currency exchange is not illegal, but in general Argentine citizens can't really directly invest in foreign currency, either.

****Typically, these guys, and most people in Argentina, want fresh bills. None with markings or tears. Crisp, new, preferably fresh from the mint. NPR wrote a post about how this is even truer in Myanmar now as well. OH, AND HERE, $100 BILLS ACTUALLY PULL AN EVEN HIGHER BLUE MARKET RATE. Cray.

Update 1 (2013-10-01):
Dictionary.com defines "arbitrage", in terms of finance as - the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.

Seems fitting. Taking advantage of currency valuations and fluctuations to profit off of one currency in another. And given that I am American, prefer my money in USD, and the standing of the USD in the world market, I suppose I'll enjoy profiting with the US dollar here.