After two years of prioritising “a cheap dollar” as an anchor to show falling inflation figures, President Javier Milei’s government has yielded to pressure from Washington to strengthen Argentina’s international reserves.
The announcement of an update to the peso’s exchange-rate trading bands, indexing them to inflation as from January, confirms a pragmatic shift: Milei’s economic team is sacrificing the slowing of inflation in an attempt to improve Argentina’s credit profile and push down a country risk premium that, even after testing the Bonar 2029 bond, has struggled to drop below the 600 basis-point threshold.
The market’s more nuanced reading is that the “remonetisation” scheme unveiled by the Central Bank (BCRA) is designed to give the monetary authority some breathing space to buy foreign currency, while allowing the exchange rate to rise without intervention. The cost of that “flexibility,” however, is a higher floor for prices.
One former head of the Central Bank, speaking off-the-record to Perfil, explained one of the biggest challenges posed by the new framework: “An acceleration in devaluation will set a floor for inflationary inertia unless the recession deepens.” The logic is that by indexing the upper limit of the band to past CPI figures, expectations become self-reinforcing. To prevent the “remonetised” pesos from being turned into dollars, the source argued, “they need high interest rates in pesos, or on local dollar instruments, to prevent capital flight.”
At a press conference, BCRA Governor Santiago Bausili insisted that “the new exchange-rate regime is consistent with the downward path of inflation” and described the measure as “a contribution to reducing uncertainty.”
Some market voices argue the opposite effect will occur. Just a month ago, Economy Minister Luis Caputo told the Fundación FIEL that the bands were “well calibrated,” defending the rigidity of the exchange-rate ceiling.
When questioned by the press about the shift, Bausili maintained that even with changes, this remains “the best regime”, and that inflation indexation does not imply a “higher or lower” peso-dollar exchange rate, but rather “a greater degree of flexibility.”
In financial jargon, that flexibility is read as a correction forced by the scarcity of foreign currency.
Beyond inflation, the biggest question concerns the financial viability of the Milei administration’s reserve accumulation plan. Economist Pablo Moldovan quantified the challenge facing the government next year; according to his analysis, the BCRA is setting two conditions for buying reserves: an increase in demand for pesos and sufficient supply of dollars.
“The first condition looks easier. If the economy grows, demand for pesos grows. The second condition looks much more difficult,” Moldovan warned.
External sector figures for 2026 are stretched to the limit. To prevent public debt from absorbing the reserves the Central Bank promises to accumulate, Argentina’s Treasury would need to refinance (“roll over”) maturities worth around US$14 billion in the voluntary market. “A very ambitious target for the first year back on the markets,” Moldovan concluded.
The private sector would also have to play its part. To balance the foreign exchange market and cover a current account deficit, companies would need to increase their net external debt by another US$14 billion. This would imply average monthly private capital inflows of US$1.7 billion – a level that, according to historical data, has only been reached in six months over the past 23 years.
The scheme presented by Bausili contains a paradox: if the economy rebounds and consumption rises, demand for imports – and therefore for dollars – will increase, putting pressure on the upper limit of the band. In addition, outbound tourism threatens to continue exerting pressure if the real exchange rate appreciates or is perceived as cheap.
The conclusion circulating on trading desks is that unless external financing appears in record volumes, the scheme only works with a recession that flattens import demand and consumption to avoid pressure on the dollar. “They need to buy US$14 billion to meet Treasury maturities and US$10 billion to remonetise the economy. It’s a lot,” summarised the former Central Bank consulted by this outlet.
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