Among other vulnerable emerging market nations, Argentina has been in the spotlight as its currency plunged around 15% as of late. The fall marked the biggest currency tumble in more than a decade and could spell doom for the country.
The government, however, shocked the markets this time around with its sharp intervention. The Argentinean government rolled back some of the controls imposed earlier. This comes after two long years of restrictions on U.S. dollar purchases.
The government has again legalized the purchase of dollars for savings accounts albeit with some restrictions. Only citizens who earn more than 7,200 pesos ($899) a month are eligible to apply and can buy up to $2000 per month. Thus, large firms and wealthy investors would not be able to make huge purchases.
The government is known to intervene in the currency market to support its ailing currency. Strict restrictions were earlier placed on the purchase of dollars. The government also taxed citizens on credit card transactions made abroad and on online shopping on foreign websites (read: Obama’s Second Term has been Great for these ETFs).
The sudden move made by the government is aimed to reign in the black-market demand for dollars and arrest further depreciation of the peso. Though the peso is trading near 8 per dollar in the official currency market, it stands near 12.30 per dollar in the black market. Restrictions on dollar buying by the government are believed to be the main reason for the active black market.
The government has already depleted its foreign currency reserves to around $28.9 billion, a 32% plunge in the last one year and the lowest level since 2006.