- The Argentinian peso saw accelerated plunges despite a sharp rate increase.
- The currency exhibits a gloomy short- and long-term outlook.
The Argentina peso appears weary, and the condition might worsen. ARS/USD had a dollar exchange rate of 230 in June. However, the figure stood at 243 during this publication. Moreover, the black market rate appears much affected. The peso seems worthless, considering it traded at 124 a year ago.
No Easy Way for ARS
Argentina could have learned from Zimbabwe’s mistake of printing worthless trillion dollars. The Argentine government resorted to cash printing over the last few years to support the nation’s massive budget deficit.
Printing money is among the worst financial decisions any country can make since it triggers high inflation. For instance, the latest quantitative easing program by the US skyrocketed inflation to 40-year highs.
Nonetheless, Argentina’s central banks attempted to rescue the plunging peso. The country hiked rates to 97% to combat the multi-decade peak inflation of 100% in June. Rate hikes try to stabilize local currencies to make them attractive.
Argentina faces a challenge as its hikes come when confidence among residents and investors is crashing. Consequently, most individuals in the country have switched to the United States dollar. The Argentine peso will have a rough ride considering the faded confidence. Thus, the nation may have to adopt the risk strategy of using foreign currencies like the USD, Brazilian real, and China’s renminbi.
Argentina Might Ditch the Peso
Reports reveal Argentina has activated a payment system that enables it to use the Chinese currency for imports. Also, the country has been debating plans to create a common currency with Brazil for years. Moreover, Argentina might swap its local peso for the United States dollar.
While ditching the peso could be an option, the move will have risks. For instance, Argentina should spend the cash it lacks to purchase billions of dollars. Further, switching to the US dollar means the nation ceding its independence and following Fed Reserve’s directions.
The conclusion is the ARS is slumping, and there’s no solid solution. Ditching it for foreign currencies might see the Argentine peso crashing massively.
