Argentina weighs managed exchange rate once it lifts currency controls

Argentina is weighing whether to introduce a managed exchange rate regime — a “dirty float” — once it lifts its current foreign exchange controls in 2025, according to policymakers.

The South American nation has been restricting foreign exchange and capital market operations for the past five years, forcing exporters to sell their dollars. The controls are also preventing companies from sending dividends abroad and limiting individuals from buying foreign currency.

President Javier Milei and Economy Minister Luis Caputo committed to eliminating these exchange controls next year but haven’t offered details yet of the kind of currency regime they will apply afterward. But, two policymakers — Federico Furiase, a Central Bank director, and Caputo adviser Martín Vauthier — last week revealed broad strokes of the plan during a presentation at Torcuato Di Tella University in Buenos Aires.

“We already designed it but we can’t disclose many details,” Furiase said, referring to currency policy, according to a webcast published late Friday. “Clearly Argentina has to have limited currency volatility.” Furiase added that other countries have successfully lowered inflation with “a managed float that controls currency volatility.”

Press offices at the Central Bank and Economy Ministry didn’t immediately respond to a request for comment.

Argentina has had mixed results with managed floating exchange rates in the past. Caputo himself was Argentina’s Central Bank chief in 2018 and intervened in markets to shore up the peso, a strategy that ultimately became unsustainable. Another dirty float by the central bank after Caputo’s tenure failed to contain the peso’s decline too.

The prerequisite for lifting currency controls is capitalising the Central Bank, Furiase said. Other conditions, such as reducing the excess amount of pesos largely held in Treasury debt, must also be met to avoid economic tension during the transition, he said. 

Most trade restrictions have already been eased, according to Vauthier, even though Argentine exporters continue to have to sell 80 percent of their earnings in foreign currency in the official spot market and the remainder in the capital markets. Financial regulations will be phased out over time, he said. 

To help the transition, the government plans to keep limiting the amount of money in circulation, which is supposed to force dollar holders to swap their holdings of the US currency into domestic currency. The approach has strengthened the peso and enabled the Central Bank to buy dollars, according to the officials.