The Argentine peso has been weakening against the US dollar in the last few weeks, with the exchange rate reaching a record low on December 31. The dollar had a value of 356 pesos, a dramatic drop of nearly 10% within the week. This is causing fears of greater inflationary pressures.
Argentine Peso Hits All-Time Low
Argentina is one of many countries with currency controls, making it hard for the peso to maintain its value. On December 28, the peso experienced its worst devaluation ever, with the dollar trading for 356 pesos. This is a steep decline from November, when it was worth 314 pesos to the US dollar.
The peso’s sudden devaluation is largely attributed to Argentines converting their pesos to dollars and stablecoins as a hedge against further losses. This is compounded by the high demand for US dollars in an environment of exchange controls, resulting from payments companies have made.
Consequences and Explanations
Analysts point to two main factors behind the historic drop in the peso’s value. First, there is the high demand for US dollars in an environment of exchange controls. Second, there is the political and legal uncertainty led by Argentine President Alberto Fernández’s attempts to defy the country’s highest court mandate. This could lead to a further inflationary spike.
Economist Juan Pablo Albornoz commented on the potential impact of the sharp rise in the dollar’s value. He said:
Prices could rise in the coming months following this sudden increase in the exchange rate.
Economist Eugenio Mari of the Fundación Libertad argued that this could lead to further market distortions. Mari said:
Inflationary economies destroy the price structure. As a result, businesses and workers use the exchange rate to adjust their prices.
What are your thoughts on the peso’s historic devaluation? Leave your comments below.
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