3 min read
0 comments
The end of the exchange rate “cepo” promises significant changes in the Argentine economy and new perspectives for investors and citizens.
Argentina experienced a Monday (14) of significant changes in economic field. The most notable measure was the fall of exchange controls, popularly known as the exchange “cepo”, after the approval of a new agreement with the International Monetary Fund (IMF).
This relaxation of the fixed exchange rate system, which will now be adjusted to a currency band model, has generated many expectations about the impacts on the country's economy. However, doubts have also arisen about the value of the dollar and the possible effects on domestic inflation.
What was the “Cepo” currency and how did it impact the economy?
The currency “cepo” was a series of restrictions imposed on Argentina’s foreign exchange market. For years, this measure was applied to contain the devaluation of the peso and control the flight of foreign currency from the country.
- Geopolitical uncertainty hits Volvo CE sales despite growth in South America and Asia
- Lula intensifies geopolitical agenda with trips to Russia and China in May
- Brazil to host 11th edition of BRICS Parliamentary Forum, focusing on new world order
- Elon Musk decides to focus more on Tesla and less on the Trump administration amid the company's financial challenges
In its most recent version, implemented after the sharp devaluation of the peso in 2019, individuals were limited to purchasing just $200 per month to save, known as a “savings dollar.” In addition, there was a 30% tax on this purchase.
The restriction also affected foreign trade, and companies faced several limitations in transferring foreign currency abroad. In financial market, the “cross restriction” forced those who bought dollars to wait 90 days for redemption.
Changes to Argentina’s exchange rate system: The end of “Cepo”
With the new measure, exchange restrictions have been virtually eliminated. Now, citizens with pesos in bank accounts can buy dollars without any limit, either at bank branches or through digital platforms.
These dollars can be withdrawn physically or transferred to dollar savings accounts, or even sent abroad. However, the exchange of pesos for dollars in cash remains limited to US$100, due to money laundering control concerns.
New exchange rate system
The floating exchange rate system comes into effect, with a exchange rate band established between 1.000 and 1.400 pesos per dollar. The Central Bank of Argentina may intervene in the market only if the value of the dollar exceeds these limits.
On Monday morning, the official dollar rose to 1.250 pesos, a devaluation of almost 15% compared to the previous Friday. Meanwhile, the “blue dollar”, the parallel market rate, was at 1.285 pesos, a drop of 6,5% compared to last week.
Effects of the new exchange rate on prices and the domestic economy
Experts predict that, with the new exchange rate, domestic prices will undergo some adjustments, especially in products and services whose prices are influenced by the dollar exchange rate.
Streaming services such as Netflix, Spotify and Amazon Prime Video are expected to see increases, as the “card dollar” used to pay for these subscriptions will be impacted by the new exchange rate policy.
Energy bills are also expected to rise for the upper classes, as subsidies will only be maintained for the lower income groups. However, inflation, which is expected to reach 2024% in 118, should start to fall in 2025, with estimates of a reduction to between 18% and 23%.
Economic opening and growth expectations
Experts believe that the end of exchange controls eliminates one of the biggest barriers to Argentina's economic integration with the world.
As a result, a greater inflow of foreign capital is expected, an increase in investments in the productive sector and, consequently, greater job creation and economic growth.
The IMF's estimates are optimistic: the Argentine economy, which shrank by 1,7% in 2024, could grow by up to 5,5% in 2025. This new economic cycle is seen as an opportunity for reconstruction and stability, after years of uncertainty and restrictive policies.
With information InfoMoney
