Argentina has been depleting its foreign currency reserves at an alarming rate for a while now, so President Cristina Fernandez has hatched a plan to get people to give up their dollars (the ones hidden under beds around the country and in foreign bank accounts around the world).
Here’s the plan (according to Bloomberg): Argentina will print dollar denominated certificates called Cedines that will trade in pesos. The hope is that will attract around $2 billion from Argentines sitting on undeclared funds (offering them amnesty from prosecution for hiding those funds at the same time) to help boost the country’s $37.2 billion of foreign cash reserves — that’s a six-year low, by the way.
There is a problem with this plan however, and it’s that for it to work, the government will have to ensure that Cedines can be converted to dollars.
Fernandez… said last year that it was unfortunate she didn’t have a “little machine” to print dollars…While the measure is designed to provide individuals dollar-backed claims that can be used for real estate and energy projects, Empiria Consultores says Argentines will just exchange them back for U.S. currency.
“The deliberate intention of the government is for the Cedin to trade like a quasi-currency,” Hernan Lacunza, a former general manager of the central bank who runs research firm Empiria, said by telephone from Buenos Aires. “People will probably go running to exchange them for dollars as soon as they can so the effect on reserves will be ephemeral.”
So there’s that.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.