The Minister of Economy of Argentina has announced new measures to prevent the dollar from continuing to gain ground in the Argentine economy, therefore, through a decree signed by the President of that nation and published on March 23, it instructs the public entities to sell their bond holdings in dollars and convert them to pesos under certain criteria.
The Argentine economy has been facing significant financial difficulties in recent years, and the Ministry of the Economy has been looking for creative ways to address these challenges. In an effort not to touch the country’s reserves, the Minister has announced a plan to pesify the bonds that are currently traded in dollars.
This decree enables the exchange of these bonds for pesos, which would allow the country to reduce its dependence on the dollar and avoid the devaluation of the local currency. This measure could also help reduce inflation, since the prices of goods and services would be denominated in pesos..
However, some financial experts have expressed their concern that this measure may have a negative impact on the confidence of foreign investors, since it could be perceived as a desperate move. Besides, there is a risk that the exchange rate of the peso against the dollar will be negatively affectedwhich could further hamper the country’s ability to attract foreign investors.
Despite these risks, the Finance Minister has defended the move, saying it is necessary to help stabilize the country’s economy in the long term. The government is also exploring other ways to address the country’s financial challenges, including measures to reduce public spending and increase foreign investment.
They consider that this measure provides a better macroeconomic outlook for the country, for this reason they indicate in the decree that: “The actions provided for in this decree are important to reduce the negative incentives that generate the exchange rate gap on inflation, foreign trade and the proper functioning of the economy, and improve the prospect of financing the needs of the NATIONAL TREASURY for a large part of 2023 , clearing up the unfounded uncertainty about the bond market in pesos”.
This measure, added to the rise in interest rates in the South American country, allows, in theory, to absorb a greater amount of pesos, and in this way reduce the current currency, which is also an inflationary aspect.
Besides, part of the agreements that Argentina maintains with the International Monetary Fund consists of maintaining a certain level of reservesTherefore, in the face of market events that make the dollar rise so abruptly in the stock market, the Central Bank of Argentina usually intervenes by selling dollars, and in this way contain these increases.
However, with the drought that has reduced foreign exchange earnings from the sale of farm products, and the general drop in exports, the flow of foreign currency is at riskso this measure can help maintain existing reserves, and with less fiscal pressure, it is likely that these reserves will begin to increase.
Evolution of the MEP dollar in the last 6 days – Source: Ámbito
Despite the fact that in Argentina different referents who oppose the measure have issued their opinions and reasons, the fact is that the markets have responded satisfactorily, so the stock dollar or MEP as it is known, contracted 2.30% and closed at the time of writing this note, at 378.01 pesos.
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