Quickly upon taking office on December 10, Argentine President Javier Milei has endeavored to orchestrate a whirlwind of economic change. This article updates our publication of 2023 (find here). This sequel looks at the new rules governing the exchange rate between the Argentine peso and the U.S. dollar.
The Taming of the Kraken
Until just a short while ago, Argentina juggled more than 19 exchange rates in an unsustainable effort to allow inflows but slow, and eventually stop, outbound flows of the dollar and euro, Argentina’s de facto reserve currencies.
We characterized the country’s awkward rules of exchange as something akin to the mythic Kraken. Thus, we saw a multitentacled underwater beast (government rules of financial suppression), that strangled its prey (Argentina’s economic participants).
Under Milei, the government has attempted to slay (or at least tame) the Kraken.
On December 12, the government “recalibrated†the peso by catapulting the official exchange rate to AR$ 800 per U.S. dollar. The day previous, the peso had been trading at AR$ 400 = US$ 1.
The new government further signaled its intention to seek market equilibrium by announcing that the peso would continue to devalue indefinitely relative to the dollar at a “crawling rate†of 2% per month.
