Argentina is implementing a new strategy to combat inflation and stabilize its currency, the peso. Economy Minister Luis Caputo announced on Saturday that the central bank will start selling U.S. dollars in the country’s parallel foreign exchange markets. This move is aimed at freezing the country’s money supply and contributing to the disinflation process.
Balance in the Monetary Base
Starting Monday, the central bank will issue pesos to buy U.S. dollars on the formal exchange market. To balance Argentina’s monetary base, an equivalent amount of dollars will be sold on the parallel “CCL” exchange market. This strategy marks a significant shift, as Caputo stated that there are no more pesos being printed in Argentina through any means.
The government’s goal is to stabilize the money supply, bring down inflation, and narrow the gap between Argentina’s official and parallel exchange rates. The country’s peso has been depreciating sharply in parallel markets due to strict currency controls. President Javier Milei’s administration aims to address this issue and restore stability to the currency.
President Milei welcomed the announcement, emphasizing the significance of halting the increase in Argentina’s monetary base. The president highlighted the impact of the new strategy on accelerating the deflation process in the economy. Since taking office, Milei has overseen a significant reduction in inflation, from 25.5% in December to 4.2% in May, with June’s figure at 4.6%.
Investor Confidence
The government’s efforts to combat inflation and stabilize the currency have gained attention from investors. President Milei and Economy Minister Caputo are currently attending the Sun Valley Conference in Idaho, where they are engaging with investors. The new strategy is seen as a step towards restoring confidence in Argentina’s economy and attracting investment.
Argentina’s decision to sell U.S. dollars in the parallel foreign exchange markets marks a bold move to address inflation and stabilize the currency. The government’s strategy aims to balance the monetary base, combat inflation, and narrow the gap between official and parallel exchange rates. President Milei’s administration is focused on accelerating the deflation process and restoring investor confidence in Argentina’s economy.