Portfolio Personal – The level of International Reserves continues to be at critical levels. The drama was not observed so much in the Gross International Reserves, which started the year at US $ 44,839 million and today stand at around US $ 38,600 million, but rather in the level of the Net International Reserves that began the year near the US $ 12,6000 million and today it has fallen to approximately US $ 3,000 million. The Net International Reserves are the most important since they represent the genuine reserves of the BCRA. On the other hand, the Gross International Reserves also include dollars that do not belong to the BCRA, such as: Reserve requirements, the Swap with China, Obligations with International Organizations, National Treasury Deposits.
The importance of observing the Net International Reserves lies in the fact that, if it is necessary to intervene in the Exchange Market, it is the net reserves that should be taken into account to act. During 2020, the BCRA has sacrificed many net reserves to keep the official exchange rate at bay without rising too much. The problem is that it is running out of scope for action because they are increasingly scarce.
Worse still, this problem is further exacerbated. Not all net reserves are in dollars. The BCRA has gold and SDRs (Special Drawing Rights). This distinction is also important because if the foreign exchange market begins to creak and the BCRA wanted to intervene quickly, it would need the dollars and neither gold nor SDRs would be useful, at least in the short term. In short, the Rapid Availability Net International Reserves are those where gold and SDRs are discounted from the net reserves. Until a few weeks ago this was giving a number close to zero. Today, it is already in negative territory, which would be showing that the BCRA already has no room for action in the short term if there were strong pressure on the official dollar (which today is in stock).
The BCRA could choose to transform gold and SDRs into genuine dollars to be able to acquire a little more ammunition, but this also brings its risks, mainly of confidence. In other words, the cost of using gold and SDRs may be higher than not using them because it would be giving the signal that the BCRA would be scratching at the end of the pot and could generate a crisis of confidence that generates strong coverage in parallel dollars. In short, the challenge remains how to generate the supply of dollars that in Argentina is so scarce.
By Iván Cachanosky, Chief Economist for Libertad y Progreso.