Blue Chip Swap

A blue chip swap is a little like solving a jig saw puzzle, or even a shell game where you guess which cup the penny is under. Here’s how it works:

A. Joe Blue of the USA purchases a foreign stock, bond, or currency.

B. With the help of a friend, he then transfers the asset to a Citibank branch in London.

C. Next, he transfers the foreign asset to a U.S. branch of Citibank, and hopefully reaps a profit.

Why go to all this trouble? Joe most likely got a reduced price on the stock, for example, and he also took advantage of depreciated exchange rates. Others use blue chip swaps to legally move money in and out of countries such as Brazil and Argentina.

Blue chip swaps became very popular in the late 1980s and 90s, when they were experiencing hyperinflation, and established capital control laws. When Argentina got rid of their fixed exchange rate in early 2000, they tied their peso to the U.S. dollar. The exchange rate plummeted, making it a perfectly lovely time to do some blue chip swaps.