Report on the Evolution of the Foreign Exchange Market and the Foreign Exchange Balance

This report analyzes the evolution of purchases and sales of foreign currency in the foreign exchange market, corresponding to December.

Main aspects

Global economic activity continued to slow in recent months and global growth forecasts for next year continued to shrink. This scenario occurred in a scenario in which the persistence of high inflation led central banks in advanced economies to implement the largest cycle of contractionary monetary policy since the global financial crisis of 2008/09. While financial conditions for developing countries improved at the margin, a mostly adverse environment of high interest rates and net capital outflows still prevails.

In this context, the BCRA continued to improve foreign exchange regulation in order to promote a more efficient allocation of foreign currency. In particular, in order to encourage the commercialization of soybeans and their derivatives, the National Government instructed, through Decree 787/2022 of November 27, the reestablishment of the “Export Increase Program”, in force from the 28th of the same month until December 31, where an exchange rate of $230 for every USD 1 was established for income through the exchange market for exports of these products (for access Decree 787/2022 click here). In turn, it was confirmed that as of January 2023, the currency swap agreement in force between the BCRA and the Bank of the People’s Republic of China will be activated. The swap includes the exchange of currencies as a reinforcement of international reserves for 130 billion yuan renminbi (equivalent to USD 19,000 million) and a special activation for 35 billion yuan renminbi (equivalent to USD 5,000 million) to compensate for foreign exchange market operations.

In December, the entities’ customers sold USD 2,348 million in the foreign exchange market, of which the BCRA bought USD 2,222 million (USD 2,576 million were purchased under the Export Increase Program) and the entities USD 192 million, while the BCRA made net payments through the Local Currency Payment System for USD 67 million. In addition, sales were recorded from the National Treasury directly to the BCRA for the equivalent of USD 1,184 million.

The “Non-Financial Private Sector” was a net seller of foreign currency for USD 2,314 million in the foreign exchange market. Within that group, the main sector in terms of net sales, “Oilseeds and cereals”, recorded net revenues of USD 3,633 million, 41% more than in the same month of 2021. The highest income from goods in the sector during December occurred under the framework of the second edition of the “Export Increase Program”.

The “Real Sector excluding Oilseeds and Cereals”, was a net buyer of foreign currency for a total of USD 999 million, exhibiting a year-on-year reduction of 58%. The purchases were mainly intended to make payments for imports of goods and services.

“Individuals” bought USD 436 million net, mainly for card expenses for consumption with non-resident suppliers (USD 277 million) and for hoarding (with a net of USD 127 million for ticket purchases).

The “Institutional investors and others” sector, both residents and non-residents, made net sales in the month of USD 115 million, mainly from net income from services.

The foreign exchange current account, which includes net flows from net exports of goods and services and primary and secondary income, registered a surplus of USD 2,220 million. This result was explained by net income from transfers for goods of USD 3,158 million, partially offset by the deficit results of the “Services” and “Primary income” accounts of USD 473 million and USD 467 million, respectively.

It should be noted that, in December, gross travel and ticket revenues increased by 78% compared to the previous month and reached USD 108 million, the highest value since March 2020. This increase occurred after the BCRA’s decision to exclude such operations from the requirement of settlement in the foreign exchange market, which allows recipients of foreign currency to apply a higher exchange rate to card purchases in the country by non-resident tourists.

The financial account of the “Non-Financial Private Sector” had a deficit of USD 148 million in December, highlighting the records for the cancellations of balances in foreign currency with local entities for the use of cards with non-resident suppliers for USD 244 million (which do not entail a net demand for foreign currency in the financial account)1, the records of expenditures for exchange operations for transfers abroad for USD 120 million and the cancellation of loans from international organizations for USD 58 million, partially offset by foreign direct investment income for USD 66 million, foreign assets for USD 95 million and financial loans and debt securities for USD 114 million.

In December, the operations of the foreign exchange financial account of the “Financial Sector” resulted in a deficit of USD 1,078 million. This result is explained by the increase of USD 1,063 million in the liquid foreign assets of the entities that make up the General Exchange Position (PGC), by expenditures for the concepts of financial loans and credit lines for USD 11 million and for the purchase and sale of securities for USD 5 million.2

On the other hand, the operations of the foreign exchange financial account of the General Government and the BCRA resulted in a surplus of USD 3,958 million, explained by gross disbursements of the International Monetary Fund for an equivalent of USD 5,994 million (SDR 4,500 million) and gross capital payments for an equivalent of USD 2,684 million (SDR 2,014 million). by net disbursements of “Loans from other International Organizations and others” for USD 723 million, and by income from “Financial loans and credit lines” for USD 25 million, partially offset by records of exchange operations for transfers received from abroad for USD 18 million and for the “formation of foreign assets” for USD 82 million.

In December, the BCRA’s international reserves increased by USD 6,588 million, ending the month at a level of USD 44,598 million. This increase was mainly explained by the BCRA’s purchases in the foreign exchange market, the net income from disbursements by the International Monetary Fund and other international organizations for USD 3,960 million, and the rise in the price in US dollars of the assets that make up the reserves for USD 698 million, movements that were partially offset by the net payments of the BCRA through the Local Currency Payment System for USD 67 millions.