• The U.S. dollar-Argentine peso exchange rate escalated during December, with the Argentine fiat currency reaching new historic lows as citizens ran to exchange their holiday payments for dollars.
• The Argentine peso plummet accelerated last week when it lost more than 10% of its value.
• Analysts who seek to explain the historic drop in the currency’s value mention that there are two main elements making the exchange rate soar.
The value of the Argentine peso has sunk to its lowest level ever as citizens rush to exchange their holiday payments for U.S. dollars. The exchange rate between the U.S. dollar and Argentine peso has seen an unprecedented escalation over the past month, with the Argentine fiat currency reaching new historic lows. On December 28th, the U.S. dollar reached a value of 356 pesos in its parallel cash denomination, commonly referred to as the “blue” exchange rate, having closed November at 314 pesos per U.S. dollar.
Analysts and economists have sought to explain the historic drop in the currency’s value, and have identified two main elements making the exchange rate soar. The first has to do with the abundance of pesos in the market due to payments companies have made, increasing the demand for dollars in an ecosystem with exchange controls. The other has to do with the political and legal uncertainty created by the attempt of Argentine president Alberto Fernandez to disobey the mandate of the International Monetary Fund (IMF).
These factors, combined with the weakening of the Argentine peso since the start of 2022, has caused Argentines to drop their peso-based savings in favor of dollars and stablecoins as a hedge. The Argentine currency has lost more than 70% of its value since the beginning of the year, having started at 207 pesos per U.S. dollar. This decline has led citizens to seek U.S. dollars as a safe haven, causing the exchange rate to skyrocket.
The economic situation in Argentina is becoming increasingly precarious, with inflation and poverty levels on the rise. The government has implemented various measures to try and stabilize the value of the peso, such as increasing taxes and cutting public spending. However, these measures have not been able to prevent the currency from sinking to its lowest level in history.
The current situation in Argentina is a reminder of the importance of stable currencies and the importance of protecting one’s savings. With exchange controls in place and the peso’s value continuing to decline, Argentines are turning to U.S. dollars and other forms of stable currencies to ensure the security of their savings. It remains to be seen whether the Argentine government will be able to implement measures to help stabilize the peso, or if the currency will continue to decline in value.