Exchange Rates: How Much Is a Dollar Worth in Argentina? 

(Part II – The Milei Era Begins)

Quickly upon taking office on December 10, Argentine President Javier Milei has endeavored to orchestrate a whirlwind of economic change. This article updates our publication of 2023 (find here). This sequel looks at the new rules governing the exchange rate between the Argentine peso and the U.S. dollar.

Until just a short while ago, Argentina juggled more than 19 exchange rates in an unsustainable effort to allow inflows but slow, and eventually stop, outbound flows of the dollar and euro, Argentina’s de facto reserve currencies.

We characterized the country’s awkward rules of exchange as something akin to the mythic Kraken. Thus, we saw a multitentacled underwater beast (government rules of financial suppression), that strangled its prey (Argentina’s economic participants).

Under Milei, the government has attempted to slay (or at least tame) the Kraken.

On December 12, the government “recalibrated” the peso by catapulting the official exchange rate to AR$ 800 per U.S. dollar. The day previous, the peso had been trading at AR$ 400 = US$ 1.

The new government further signaled its intention to seek market equilibrium by announcing that the peso would continue to devalue indefinitely relative to the dollar at a “crawling rate” of 2% per month.

But wait, there’s more. The government not only tinkered with the official exchange rate but also dialed down tax rates and bid adieu to special ad hoc currency rules.

In one week, the Kraken lost 13 of its tentacles, leaving 6 exchange rates as of the close of last week:

(Buying on the cheap always proves expensive)

“Lo barato siempre sale caro” is a popular phrase used by Argentines to warn against the ephemeral utility of something that is cheap.

As of this publication, the official exchange rate stands at AR$ 824, while the market rate dances around AR$ 956. A gap that once exceeded 150% has now narrowed to a mere 15%.

The Milei government seeks a unified exchange rate once the economy finds its legs and stabilizes. In the meantime, capital controls continue (which must raise the hackles on the necks of the president’s dogs named after his preferred economists, Milton Friedman, Murray Rothbard and Robert Lucas) until Argentina replenishes its international reserves.

As the Milei administration continues to roll out new measures, we will continue to report on them. Stay tuned!