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Argentina’s Peso Plunge Threatens Milei’s Currency Control Plan 

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Argentina’s peso has plunged on the black market, casting doubt on President Javier Milei’s plans to lift strict currency controls and stabilize the economy. 

President Javier Milei renewed his campaign promise this week to eliminate the Argentine peso and replace it with the U.S. dollar. 

Image Source: The Economist
President Javier Milei renewed his campaign promise this week to eliminate the Argentine peso and replace it with the U.S. dollar. 
Image Source: The Economist 

Argentina’s peso experienced a significant drop in the black market this week after a period of relative stability, posing a challenge to President Javier Milei’s ambitions to eliminate strict currency controls. The peso plummeted more than 15% against the dollar in the past week, reaching a record low of 1,300 pesos per dollar on the black market, where Argentines often turn to sell their rapidly depreciating currency. 

This sharp decline marks the fastest drop in a seven-day period since Milei assumed office in December. Analysts attribute the volatility to the Argentina central bank’s aggressive interest rate cuts, which have slashed the benchmark rate from 70% to 40% in just over a month. 

These cuts are a core component of Milei’s strategy to halt money printing, the primary driver of Argentina’s chronic inflation, which hit an annual rate of 289% in April. 

In a parallel financial market used by traders and some businesses, the peso fell 12% in a week, reaching a near record low of 1,247 pesos per dollar before stabilizing on Thursday. Consequently, the gap between the parallel rates and the official exchange rate, currently 873 pesos per dollar, has widened to almost 40%. 

Milei has prioritized lifting Argentina’s stringent currency controls as a key objective of his economic program, viewing them as a significant impediment to economic growth. However, he can only proceed if the gap between the official and black market rates is narrow. 

Reviving his campaign promise to abolish the Argentine peso in favor of the U.S. dollar, Milei told business leaders on Tuesday that he would soon allow “competition” between the peso and the dollar. “The peso will become like a museum piece and when it becomes very rare, what do you think we will do?” he said. “We will dollarize and that way the peso will disappear.” 

Argentina's black market currency rate has fallen sharply in the past week. 
Image Source: Financial Times 
Argentina’s black market currency rate has fallen sharply in the past week. 
Image Source: Financial Times 

The rate cuts have led individuals and companies to avoid holding peso instruments, increasing the demand for dollars to protect against inflation. This situation highlights the delicate balance that economy minister Luis Caputo must maintain to resolve Argentina’s long-standing crisis.

Ramiro Blazquez Giomi, BancTrust’s head of research and strategy, explained, “Caputo has been deliberately testing the market by cutting rates so fast [to see how robust demand for pesos was]. This shows the limits of the economic plan: we can only advance towards lifting currency controls if we have measures that bring more dollars [into Argentina’s central bank], or there will be a run on the peso.” 

Milei is seeking to borrow up to USD 15 billion from external creditors, including the IMF, to support his plan to lift currency controls. Despite pressure from Argentina’s business sector to accelerate the devaluation of the peso’s government-controlled official exchange rate, Caputo is gradually reducing its value by 2% per month against the dollar, even though monthly inflation is four times higher. Large official devaluations tend to exacerbate inflation in Argentina. 

Fernando Marull, founder of finance consultancy FMyA, described the peso’s fall as “a yellow warning light” for Milei’s plan. He noted that while the gap between the official and black market rates is currently large, it has been wider under previous governments. “They will wait to see if the market rebalances itself, and there are reasons to believe that will happen,” he said. “An exchange rate gap of 40% won’t change the plan — one wider than that is another story.” 

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