Argentina imposes limits on banks’ dollar holdings amid concerns over devaluation 

In a move to curb US dollar hoarding and counter an anticipated devaluation, Argentina's central bank has imposed restrictions on the foreign currency holdings of commercial lenders, Bloomberg reported.

The decree, published on Thursday, dictates that banks may not hold more than the lowest recorded amount between October 12 and December 6. The measure, effective immediately and valid until the year-end, aims to compel banks to unwind their existing dollar portfolios, thereby increasing the supply in the official exchange market.

This move is seen as a proactive step to support the peso as investors brace for a potential 27 per cent drop in the currency's value on Monday, with expectations of a 44 per cent devaluation under the incoming President, Javier Milei.

Bloomberg sources suggest that the new regulation forces banks to liquidate their current dollar holdings, potentially offering the central bank a much-needed boost. The measure aligns with Milei's commitment to address the currency issue, signalling a departure from the current administration's policies.

The Central Bank's spokespersons clarified that the objective is to prevent banks from increasing their dollar holdings on the eve of Milei's inauguration. Despite the silence from Milei's team, the move underscores the urgency felt within the government to stabilise the economy and manage the impending devaluation.

Milei's team has hinted at maintaining currency controls temporarily whileseemingly deferringplans to scrap the peso altogether. The incoming administration faces the challenge of sustaining the peso's value amid economic uncertainties.

Market analysts suggest that the current exchange rate is unsustainable, emphasising the need for decisive measures to avert a deeper economic crisis.

(With inputs from Bloomberg)

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