Just How Much Has The Argentine Peso Been Debased?

Exchange rates are usually not a good way to estimate underlying inflation in a country, simply because real exchange rates often flucuate for various reasons, usually related to asset market developments. That was for example why the euro dropped so much against most currencies in the first half of 2012, only to recover against most currencies since July 2012. The first drop was related to increasing worries about  the debts of Southern European countries, with the recovery being related to those worries easing. And the yen's recent dramatic drop hardly reflects high Japanese inflation, though it will no doubt cause inflation to rise in Japan.

However, in a country like Argentina where the inflation statistics are obviously cooked, exchange rate movements might in fact provide a hint of how high inflation is. And as you can see the currency has just kept falling and falling against the U.S. dollar (the chart shows how many Argentine peso is required to buy a U.S. dollar so a rising number indicates a weaker peso).

It gets a lot worse in a longer term perspective. As you can see on the chart, it now takes 5 peso to buy a U.S. dollar, up from 4 in 2011. But remember that before the devaluation, it had a 1:1 exchange rate to the U.S. dollar, so its value is now only a fifth of what it was then.

And that's relative to the U.S. dollar, whose value have dropped significantly against most currencies during that time. For example back in 2001, it was more than 10% higher valued than the euro, now the euro is 35% higher valued. So while the peso has dropped 80% against the dollar, it has dropped some 86% against the euro.