In the midst of rampant inflation,the Argentine peso experienced a staggering devaluation—more than 50%—during the first four months of June 2023.This economic turmoil has led many Argentines to seek alternative measures to preserve their purchasing power,predominantly by converting their savings into U.S.dollars.Javier Milei,a liberal economist at the time,did not mince words on the campaign trail that October,declaring the peso to be “worthless” and promising to implement a complete dollarization of the economy if elected.
Fast forward a year into Milei’s presidency,and the peso—a currency previously derided by Milei—found itself in an unexpected resurgence.Thanks to the rigorous fiscal austerity measures and strict foreign exchange regulations imposed by the Milei administration,inflation rates saw a significant decline,leading to a stabilization of the peso both in official and black market exchanges.This stability was nearly miraculous,given the peso’s persistent depreciation over the last decade.In fact,when taking into account real exchange rates,the peso actually appreciated by more than 40% last year,outpacing other major global currencies.
This transformation marks yet another chapter in Argentina’s long,turbulent history of currency volatility.As local investors began to capitalize on this new economic landscape,many engaged in arbitrage transactions,borrowing funds in low-interest dollars and converting them into pesos to exploit the vast differences between dollar borrowing costs and peso depreciation.
Despite the widespread negative impacts of the economic crisis and austerity policies,members of the Argentine middle class have found a silver lining: their pesos are now worth significantly more abroad,enticing them to spend on luxury trips to Brazilian beaches and shopping centers in Chile.For example,María Cristina,a teacher from Patagonia,remarked,“Now is the time to go out; things are cheaper elsewhere.”
Moreover,the experience of using cash in Argentina has improved noticeably.Recently released banknotes have introduced denominations of 10,000 and 20,000 pesos,equivalent to about 10 and 20 dollars respectively,replacing the previous highest denomination of just 2 dollars.This transition reflects a shift towards making transactions more convenient amidst the fluctuating economic climate.
Amidst this changing landscape,young Argentinians like Tomas,who is pursuing an MBA,faced tough choices.He noted that if he kept his $10,000 savings in dollars,he risked their value shrinking due to potential peso depreciation,which would leave him unable to cover tuition.As a result,he opted to convert his dollars entirely into pesos and place them in a term deposit.“This goes against the usual habits of Argentinians,” Tomas explained.“But if I hold dollars,the course fees could increase by 50%.”
While locals navigate this new currency environment with acumen,tourists have found themselves caught off guard.Visitors to Buenos Aires have witnessed the city transform from one of Latin America’s cheapest destinations to one of its most costly,with bills at bars and restaurants sometimes exceeding those in Western Europe and North America.One digital nomad working from a co-working space complained to friends that food prices were more expensive than in Canada,stating,“A pizza costs $20!”
However,locals express little empathy for such complaints.A CEO highlighted how the previous years of incredibly low prices in Argentina became a sore subject— a stark contrast to the remark that foreigners note as “cheap” which locals once viewed as a shameful label.
The sustainability of the peso's strength remains uncertain.The Milei administration has pledged to lift currency and capital controls in the latter part of the year,prompting economists to closely monitor changes in the pent-up demand for dollars that may arise once these policies are relaxed.
There are already indications that the role of the dollar may become more significant than ever as restrictions ease.Companies now have the option to price their goods in both dollars and pesos,although this practice has yet to become mainstream.
As of February this year,the Argentine government has allowed citizens to utilize debit cards priced in dollars,a move aimed at enhancing financial flexibility.Most crucially,a tax amnesty policy has incentivized approximately $15 billion categorized as “mattress money”—funds kept at home or stashed in foreign banks—to reenter the banking system,thereby bolstering the availability of dollar credit.
Daniel Marx,a former Argentine finance minister,remarked that for the government to earn the trust of the public,it must demonstrate the peso's “long-term stability.” He emphasized,“People have a tendency to protect what they possess.If the local currency fails to do so,they will seek alternatives.”