Posted by Allison on 23 December 2015, 13:28
If you have kept up with events in the currency markets, you will probably know the Argentinian peso has been subjected to strict currency controls in recent times. However, that all looks set to change at the time of writing.
Argentina currently has a huge rate of inflation, standing at 25%. The currency controls were previously introduced to ensure the peso remained strong. However, as those controls are to be withdrawn, there is every chance the value of the peso will drop considerably.
Before those controls were removed, you could get around 10 pesos to the dollar. Afterwards, it is likely the peso may drop in value by around 30%. Needless to say, we don’t often see this on the currency markets, which is why it has garnered so much attention.
The move is being made by the new president of the country, Mauricio Macri. He is hoping the move will help boost exports and kickstart growth in the country again. Whether or not this actually happens, remains to be seen.
At the time of writing it is too early to see whether there is any move – and if so, how much – in the rate of exchange seen between the peso and the US dollar (and other major currencies in the world). Yet many have said it is the ordinary Argentinian who is likely to run into problems in the near future. There have been questions over whether civil unrest might result, as people may find themselves having to stretch their money a lot further to make ends meet.
Massive devaluations don’t happen too often in the currency world. Perhaps this is just as well, as they can be very destabilising. There is often some drama around the loss of value of a currency – drama that directly affects those who live in that country or region.
This is certainly a bold move from those in charge in Argentina. The finance minister in the country, Alfonso Prat-Gay, has confidently announced the move will help the country grow, where it had been stagnant for many years before. Perhaps bold changes demand bold moves like this. Yet there is no way of telling whether the desired result will indeed take place. If it does not, it makes you wonder what Argentina and its currency will face next. Certainly, there will be a significant proportion of the country that will be unsettled over the move. Those directly affected are likely to react badly if it backfires.
However, one good point to note is that economists have stated the peso was valued at far more than it should have been. So perhaps this is more a case of regaining a more realistic balance than anything else. Whether it is or not, it will still be challenging for the country to navigate these choppy financial waters.