In a bid to address potential devaluation concerns and counteract the hoarding of US dollars, Argentina’s central bank has implemented restrictions on the foreign currency holdings of commercial lenders. The new decree, published on Thursday, stipulates that banks cannot hold more than the lowest recorded amount between October 12 and December 6. The measure is effective immediately and will remain in place until the end of the year. The primary objective is to compel banks to unwind their existing dollar portfolios, thereby increasing the supply in the official exchange market.
This move is considered a proactive step to support the Argentine peso, as investors anticipate a potential 27% drop in the currency’s value on Monday, with expectations of a 44% devaluation under the incoming President, Javier Milei. According to sources cited by Bloomberg, the new regulation forces banks to liquidate their current dollar holdings, potentially providing the central bank with a much-needed boost. The measure aligns with Milei’s commitment to address currency issues, signaling a departure from the policies of the outgoing administration.
Central bank spokespersons clarified that the objective is to prevent banks from increasing their dollar holdings on the eve of Milei’s inauguration. While specific details of Milei’s economic plans are awaited, the urgency conveyed by the government underscores the challenges of stabilizing the economy and managing the anticipated devaluation.
Milei’s team has hinted at temporary maintenance of currency controls and deferred plans to scrap the peso, acknowledging the precarious state of the Argentine currency. The incoming administration faces the formidable task of sustaining the peso’s value amidst economic uncertainties. Market analysts emphasize the unsustainability of the current exchange rate and stress the need for decisive measures to avert a deeper economic crisis.
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