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ECONOMY | 05-10-2023 17:25

Argentina's peso tumbles with dollarisation rush amping up before vote

Argentina’s peso is tumbling as Argentines rush to exchange pesos for dollars ahead of presidential elections later this month, posting its worst losses since an August sell-off.  

Argentina’s peso is tumbling as Argentines rush to exchange pesos for dollars ahead of presidential elections later this month, posting its worst losses since an August sell-off.  

The nation’s parallel exchange rate, known locally as the blue-chip swap, has tumbled as much as 12.6 percent this week on parallel exchanges to a record 900 pesos per dollar, bringing the gap between the official and parallel exchange rates to around 157 percent, the highest since July 2022. It’s the sharpest drop in the parallel rate since the government devalued the official rate it controls following the August 13 primary election.  

Argentines are flocking to parallel markets to dollarise their salaries to shield themselves against 120 percent inflation and another sharp currency devaluation that economists say is inevitable sometime after the October 22 vote. The Central Bank is out of reserves to defend the currency, and the incumbent left-leaning administration’s spending plans to win over voters only puts more pressure on inflation and the exchange rate ahead of the election.

Argentina’s beleaguered peso — by far the worst performer in emerging markets — is also being dragged down by a rout in global risk assets that has weighed on emerging market currencies and driven up bond yields worldwide.

Leading presidential candidate Javier Milei’s proposal to dollarise the economy and shutter the Central Bank is also driving Argentines to snap up dollars as fast as possible, according to local brokerage Portfolio Personal Inversores.

“Consensus is gaining in the market that the complex dollarisation plan of the candidate who leads the polls could be exacerbating the typical pre-election dollarisation of portfolios,” PPI analysts led by Pedro Siaba Serrate wrote in a note.

by Scott Squires, Bloomberg

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