In 2023, the Argentine peso (ARS) experienced a historic decline, reaching its lowest exchange rate against the US dollar (USD), reflecting the country’s continued economic problems following multiple debt defaults and soaring inflation. This placed the peso among the worst performing currencies in the world.
At the time of writing this article, on October 4, the USD/ARS currency pair was at an all-time high of 350. The pair reached this mark in mid-August after Argentina’s monetary authorities devalued the national currency by almost 20%.
So far this year, the ARS has fallen almost 100% against the dollar.
On October 3, the peso also fell to a new low in parallel trade at 805 per dollar, as uncertainty grows ahead of the general elections scheduled for this month.
What is happening with the Argentine economy and the peso?
The decline of the Argentine peso against the dollar and other global currencies began several years ago as a result of government mismanagement.
The South American economy has been rescued by the International Monetary Fund (IMF) after defaulting on its debt obligations several times.
In August 2023, the ARS plummeted to a record low of 350 after Argentine authorities devalued the currency by 18% and raised the benchmark interest rate to 118%. The move came after the current government suffered a stunning defeat in a primary election.
Argentine assets plummeted across the board following the better-than-expected electoral performance of Libertarian candidate Javier Milei.
Milei, a former economist, is known for his plan to dollarize the country’s economy and abolish the central bank. This plan would result in the elimination of the peso and the adoption of the dollar as legal tender in an attempt to eliminate the country’s skyrocketing inflation.
Argentina’s general elections will take place on October 22, 2023, where the new president, vice president, members of the national congress, and governors of most provinces will be elected.
Bank of America expects the peso to weaken in 2024
In the wake of the peso devaluation, Bank of America (BofA) strategists offered no words of encouragement regarding Argentina’s national currency.
Unless Milei becomes the next president and dollarizes the country’s economy, the worst is yet to come for ARS, BofA experts said in August.
In particular, analysts expect the official USD/ARS exchange rate to fall to 545 by the end of 2023, followed by another drop to 1,193 by the end of 2024. The reason for this prediction is that BofA expects the winner of the Argentine elections continue with the devaluation of the peso starting in December.
However, the bank’s analysts viewed the devaluation as positive because they believe the ARS was previously overvalued, indicating that the current government is taking steps to address necessary macroeconomic adjustments.
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