Argentina Dumps US Dollar to Control Inflation

BUENOS AIRES – Bank sentral Argentina will start selling dolar AS in the foreign exchange market in an effort to combat inflation and control the country’s money supply. Economy Minister Luis Caputo announced the new strategy via the X platform.

He said this would “contribute to deepening the disinflation process.” Starting early last week, when Argentina’s central bank issued pesos to buy dollar AS. Caputo said the Bank would effectively balance Argentina’s monetary base by selling an equivalent amount of dollars on the market.

“There are no more pesos being printed in Argentina in any way. This is a historic novelty,” Caputo said in a radio interview.

“We beat inflation by (a few) points and this is a ‘knock out’ blow,” the minister added.

The announcement came after official data showed a five-month slowdown in inflation ended in June, when monthly inflation was higher than in May.

The strategy brought in by President Javier Milei’s government aims to stabilize the money supply, lower inflation and help close the widening gap between Argentina’s official exchange rate and the foreign exchange rate traded on financial markets.

The peso has been sliding since the start of the year, having for years deviated sharply from the official rate due to tight currency controls.

At the close of last week, the official exchange rate was trading at 919.5 pesos per dollar, while the so-called “CCL” rate was trading at 1,416.2 pesos per dollar. Meanwhile, the widely used black market “blue” rate weakened to a historic low of 1,500 pesos per dollar.

“The monetary base in Argentina is no longer increasing, and this is very strong news,” Milei said during a telephone interview with Argentine news channel LN+, adding that the plan would “accelerate the deflationary process in the economy.”

Since Milei took power late last year, inflation has slowed dramatically in Argentina, slowing from 25.5% in December to 4.2% in May.

(acres)