Argentina Peso Falls Over 11 Percent After Central Bank Abandons Policy

Argentina’s currency, the peso, has seen its sharpest one-day fall since the country’s 2002 financial crisis.

The peso fell 11% to stand at an official rate of eight pesos to the dollar. Unofficially, the rate is 13 pesos to the dollar.

The central bank had been acting to support the waning currency but this week all but gave that up.

Investors have lost confidence in the country. Despite efforts to support the economy, inflation has soared to 25%.

The official inflation rate is lower, but government data is not seen as entirely credible by those in the country nor the wider investment community.

This year, inflation is expected to top 30%.

That erodes confidence in the peso, prompting investors to put their money into US dollars rather than the sinking domestic currency.

Restrictions
Under the presidency of Cristina Fernandez de Kirchner, Argentina has introduced a number of restrictions on transactions with foreign currency.

This week it even introduced new restrictions on online shopping as part of increasingly desperate efforts to stop foreign currency reserves from falling any further.

Anyone buying items through international websites must sign a declaration and produce it at a customs office, where the packages have to be collected.

The government now limits tax-free purchases to two a year.

Argentina’s reserves of hard currency dropped by 30% last year, making support for the peso increasingly unaffordable.

via BBC/a>

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza