Argentina Just Made A Huge Change To Its Currency Policy A Day After Its Peso Crashed

It’s just been total chaos in the Argentina in recent days and months.

Moments ago, Argentina said it would loosen capital controls that had been intended to keep money from leaving the country.

Argentines will be allowed to trade in their pesos for dollars in line with their income starting Jan. 27, reports Bloomberg’s Daniel Cancel.

This is a major announcement because with central bank reserves dwindling to around $US29 billion, Argentina has had itself in the extraordinarily troubling position of potentially being unable to finance its debt obligations to other countries or afford crucial imports like fuel.

In its effort to limit foreign currency transactions, Argentina had put into place capital controls. Argentines have had to fill out applications to receive dollars for their pesos. The government had also put into place massive taxes for citizens who wished to spend money overseas.

All of this led to a burgeoning black market, where the exchange rate was for Argentine pesos has been actually much substantially more unfavorable. But the fact that Argentines were willing to accept a huge discount for their pesos reflected how difficult it was to go through legal means.

Unfortunately, these growing currency black markets had made the capital controls less effective.

On Thursday, Argentina shocked everyone by saying it had abandoned its interventionist monetary policy, which caused the peso to dropped a breathtaking 13% against the dollar.

The plunging currency only added to fears that inflation would or continue to plague the troubled country.

In it’s statement today, Argentine Cabinet Chief Jorge Capitanich said that the peso had reached an acceptable level.

According to Bloomberg, the peso is now at 7.88 per dollar. On the black market its closer to 13 per dollar.

This story is obviously fast-moving and developing.

For more on this story, read The Financialist’s excellent write-up, which uses research from Credit Suisse’s Casey Reckman.

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