The myth of “negative net reserves in the BCRA”

the last payment to the IMF has put additional pressure on the reserves of the Central Bank. The same established economists and media who lobbied for the payout, then came out to encourage a run on the exchange and the bank with shocking analysis.

“The net reserves of the BCRA are less than 2 billion dollars”, published various media. Some consultants have even claimed that the net reserves are already negative, without bothering to explain in this case why the dollar did not explode. In another media outlet opposed to the government, the analysis of a consulting firm was reproduced, stating that “only 0.4% of the pesos are backed by reserves”, warning that this “could encourage Argentines to dollarize more quickly”.

The magic of “net reserves”

Through the concept of “net reserves”, the orthodox consultants erase with the stroke of a pen the little more than 37 billion dollars of reserves declared by the Central Bank. The reserves are deducted from the SDRs provided by the IMF, loans from the Bank of Basel, the reserve requirements of the banks which guarantee the deposits of their savers and the Chinese swap. This is how they arrive at the absurdity that net reserves are negativea fact which in itself demonstrates the little conceptual value of this theoretical monstrosity.

Although spare components may have different levels of liquidityThat doesn’t mean they don’t exist. Convert SDRs to dollars This can take around two weeks according to the European Central Bank. the chinese yuan swap they can be used to pay for Chinese imports, a country with which Argentina has an important commercial network. They could also be converted into dollars, even when the operation involves losses due to exchange commissions.

the bank reserves by savers’ dollar deposits essential tool to deal with currency runs which are generally accompanied by the withdrawal of dollar deposits from banks. In these situations, which the national economy has gone through many times in recent years, this reserve component becomes essential to stop panic and avoid a bank run.

The theory of backed money

The idea that only 0.4% of pesos are supported deserves a separate paragraph. Not only because in his exaggeration he reduces the numerator to almost zero by applying the concept of net reserves while he exaggerates the denominator by incorporating savings and term deposits into the currency in circulation. But because the theory of guaranteed money is worthless, as Argentina’s experience with exchange controls shows.

If the value of the peso is given by its ability to convert into a currency stock that supports it, prohibiting its conversion should automatically reduce its value to zero. The United States, in the last century, banned the convertibility of the dollar into gold, burying the last vestige of the counter-value theory that consultants want to unearth.


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