The big impact of Mercado Libre's new initiative
The big impact of Mercado Libre's new initiative
On how being able to buy dollars on Mercado Pago has a huge impact for customers and President Milei.
Hi friends!
Mercado Libre's (MELI) CEO Galperín confirmed this week on Twitter that Mercado Pago users will soon be able to buy dollars at the MEP rate directly on the Mercado Pago app.
This automatically leads to the next question.
What Is The MEP Rate?
The "MEP rate" refers to the "Mercado Electrónico de Pagos" rate, also known as the "Stock Market Dollar." It's a legal exchange rate based on the difference in prices when securities, like bonds or stocks, are traded simultaneously in local currency and U.S. dollars. Essentially, it's a method for investors to convert their local currency (Argentine pesos, for example) into U.S. dollars through the stock market, by buying securities in pesos and selling them for dollars.I know this is a bit technical, but it's important to understand this to show how Mercado Libre takes care of its customers.
When Marcos Galperín says users will be able to buy dollars at the MEP rate directly on the Mercado Pago app, it means that the app will enable users to convert their local currency into dollars within the app itself, using this ‘stock market rate’.
In Latin America, this is a huge deal. It offers an alternative to the official exchange rate, which is often much lower than the actual value of the dollar on the open market.
I will give an example. Suppose you are Argentinean. Right now, there is a monthly, yes MONTHLY, inflation of 25%. In December, the year-over-year inflation in the country was 214%. That's not a typo. 214% is crazy, but unfortunately, true.
Of course, buying dollars is a safe haven. Many buy US dollars to keep their savings stable and safe from inflation. There was a huge demand for dollars, further depreciating the peso. That's why former presidents in Argentina had strict currency controls. Citizens could only buy a limited number of dollars every month. On top of that, the official value of the peso was set at an artificially high rate, making people buying dollars lose a lot of money.
But people will be people and try to circumvent regulations. That's why there is a "blue-dollar" market, a parallel secondary market with its own exchange rate.
Many of you will know that a new leader was elected in Argentina. After years of left politicians, a right-wing president, Javier Milei, was appointed as the new President.
One of his promises during the campaign was to "dollarize" the economy. It will take years to create the right conditions, but one of the first things Milei did was devaluate the official currency exchange rate from 366 pesos per dollar to 800.
So, to summarize, there are three exchange rates: the official one, set by the National Bank; the MEP, set by the market; and the blue dollar exchange rate, set by the secondary market. Well, there are actually more, like the CCL, used by Western Union. This is an overview.
(Source)
Now, what does this mean for Mercado Pago customers? To put it succinctly, a lot!
The first obvious consequence is that Mercado Pago will be able to help its customers hedge against Argentina's extreme inflation. Mercado Pago is not in Venezuela, leaving the country in 2019, but also said it would return once there is political and economical stability. In 2018, there was 1 million percent inflation in the country. In 2023, 190%. Having dollars is a dream for many people in such countries, to make sure their money doesn't evaporate while they are looking at it.
Secondly, it makes it much easier for Mercado Pago customers to buy dollars, bypassing traditional restrictive and bureaucratic banks.
While this may look like a small measure for outsiders, for Mercado Libre's customers, this can make a huge difference.
And Javier Milei will also be happy with this initiative from Mercado Libre, as it is helping him with his goal of ‘dollarizing’ the country.
A win-win-win: for Mercado Libre’s customers, the Argentine President and Mercado Libre. And if you are a shareholder of MELI, as I am, I think this will turn even more people to use Mercado Pago as a sort of bank in their pocket.
I hope you enjoyed this article.
Note from Kris: this is a small part of the Overview Of The Week, which I publish every week on Sunday for the Potential Multibaggers subscribers. Eventually, I will also launch this service here, but for now, you get a few free snippets and a small selection of articles.
In the meantime, keep growing!