Due to washing, BCRA reserves reached the highest level in more than 5 years: what can happen from Tuesday

Money laundering has strongly boosted reserves Central Bank of the Argentine Republic (BCRA)Private sector dollar deposits saw a dizzying growth in September, totaling $7,806 million up to the 24th of the month. This was key to BCRA’s gross reserves exceeding $29 billion, the highest recorded in more than five years.

In this framework, the government decided to extend the deadline for regularization of cash by one month: from September 30 to October 31. The reason for this was the success it had in recent weeks, which is very good for an entity whose performance in terms of exchange rates, dollar purchases and reserve accumulation was far from what it was in the first part of the year.

Consulting firm Invecq emphasized that money laundering did not “take off” initially. After the regulation (released on July 16), private sector dollar deposits rose by only $273 million by the 31st of the same month. After some adjustments and clarifications from the government, they rose slightly more ($664 million in August), but still well below expectations.

However, the situation changed noticeably in September: by the 24th of this month, deposits had increased by USD 7,806 million. Moreover, the rate of growth accelerated sharply: in the first week they increased by 812 million USD, in the year 1,487 million USD. the second , $3,049 million for the third and $2,458 million in the first two days of last, marking Tuesday’s highest daily gain since the streak began in 2003 ($1,352 million).

After that, the pace was maintained and on September 27 BCRA reserves reached 29,162 million. “If this pace is maintained, the record of $32,492 million achieved on August 9, 2019 could easily be surpassed,” the consultancy said.

“The above is crucial for the government for many reasons. First of all, part of the new deposits goes to mandatory minimum reserves, which increases gross reserves. Second, it may translate into an increase in international reserves: more bank liquidity will support the expansion of dollar credit – something that has been happening without interruption since January; and due to the functioning of the system, this means more supply of currency in the free foreign exchange market and consequently more purchases by the BCRA,” the specialists explained.

“Additionally, it can be key to the appreciation of public securities, stocks, negotiable obligations and more. which are part of instruments in which money can be invested and do not pay tax. Finally, it can have some impact on the real economy, as the cash can also be used for jobs or the purchase of productive goods,” they added.

In conclusion, money laundering was a key factor in explaining the exchange-finance “summer” in September: country risk fell by 8%, the gap fell from 40% to 25%, gross reserves exceeded USD 29 million after averaging 27.4 million USD. between 07/17 and 09/17 and MERVAL in dollars rose 6% for the month.

Invecq experts warn that the positive effects could be muted, as most have probably already been washed away, or there could be a withdrawal of deposits, as after October 1 those who deposited up to USD 100,000 can do so without penalty. However, they believe that the extension of Phase 1 will continue to bring some air to the government in the short term.