Unless they want to commit themselves to ruinous losses in the event of an eventual devaluation, currency volatility renders peso-denominated accounts impractical to Argentine brokers as they seek to cope with the numerous devaluation surges that afflict the economy of the nation. The peso had been losing colossal values on the dollar several times over the last couple of years, and this situation had occurred where the balance in the accounts of clients would theoretically be worth greater than the sum of all the capital reserves held by the banker overnight. The majority of brokers just refuse to take the risk of having peso positions that might leave their operation bankrupt in case another major currency crisis occurs without any previous notice.
Arguments on peso accounts also present regulatory challenges, which are more of a headache to most Argentine brokers instead of trying to figure out the ever-evolving regulations about local currency trading. The new restrictions, capital controls, or reporting requirements often added by government authorities also turn peso account management into a compliance nightmare to firms that are attempting to keep their legitimate operations going. These control costs are especially challenging when they are coupled with the day-to-day difficulties of operating with a currency whose inflation rates run in the double- to triple-digit rates per year.
Liquidity issues have implications on peso trading markets such that brokers can hardly offer them reliable execution and competitive spreads to clients who wish to transact in local currency. The peso pair markets abroad are still thin, high-cost, and the bid-ask spread between the markets is wide making it prohibitively expensive for clients to trade even where the brokers are willing to provide such services. This is because the liquidity of the peso is not stable, which implies that brokers cannot hedge their exposure and offer the same dealings when markets are volatile.
The number of clients requesting peso accounts is still very low among the Argentine traders who tend to have their trading capital in dollars or other stable currencies, as opposed to taking a chance of additional exposure to the peso. The majority of the local traders see forex as an escape route to putting their investments in terms of peso depreciation instead of taking the extra risk of the peso as it is. Clients who at one time may have liked the idea of having peso accounts will always change their minds when they think of the reality of having a currency that will lose value over time.
The international forex broker platforms that cater to Argentine clients would, as a rule, finance their operations in dollars in order to escape the risks and problems associated with the peso locally. These offshore operators learned about the struggles of Argentine brokers and came to a conclusion that peso accounts are just not worth the operational complexity and financial risks that it entails. The international market can appeal to the Argentine customers by providing dollar-denominated accounts that promise the stability of the currencies that are inconsistent in peso accounts.
The banking relationships are extremely hard to sustain when the brokers are trying to provide peso accounts because the local banks introduce certain limitations and other requirements that complicate or make the regular business activity impossible. It is common to find that Argentine financial institutions do not trust forex brokers, and they might decline to make the required bank arrangements to have operations on peso accounts. Such banking challenges pose operational challenges rendering peso account offerings impossible even to brokers who would consider taking the currency risks.
Past experience of past peso crises is still a part of broker decision making with regard to local currency accounts as companies still recall how swiftly peso devaluations wiped out brokers who had large local currency accounts. The old players remember certain incidents of brokers who went bankrupt in previous currency crises due to the excessive number of peso-denominated positions when the big devaluations happened. These cautionary stories are effective reminders of why peso accounts are unacceptable risks to take a worthwhile risk management tool.
There has been a rise in market segmentation in the sense that Argentine traders are taking dollar account conditions as a norm instead of demanding forex broker services in their local currency. This acceptance is indicative of larger economic implications in which the instability of the peso currency renders financial relations involving dollars to be more feasible in most applications. Traders reason that brokers who do not take peso accounts are acting rationally concerning valid business reasons about currency risk and complexity of doing business.
In reality, competitive advantages are realized in the brokers that specialize in stable currency accounts instead of trying to cater to the needs of peso accounts which are not only risky, but also ultimately unprofitable for the sustainability of business operations.