How close is the unification and liberalization of the exchange market?

ARGENTINA - Report 10 Apr 2024 by Domingo Cavallo

Favorable financial indicators—the reduction of the gap between the official exchange rate and the pseudo-free exchange rates (the CCL and the "blue"), the accumulation of reserves and the decrease in country risk—are encouraging, but they should not be taken as indicators that the convergence of the inflation rate to the pace of the crawl in the official market is near on the horizon. Nor do they indicate that a successful reunification and liberalization of the exchange market is just around the corner.

The inflation rate is declining, accompanied by a strong decline in the level of economic activity and an increase in prices measured in dollars. Exiting the recession can only occur through sustained increases in exports and investment. For this reason, attention should be paid to the evolution of incentives to produce exportable goods and services and the evolution of dollar deposits in the banking system.

For reunification and exchange rate liberalization to be successful, the unified exchange rate must tend towards appreciation in such a way that to stabilize it, the Central Bank must buy reserves. If, on the contrary, to avoid a trend towards depreciation, the Central Bank had to sell reserves, progress towards the elimination of inflation would be in danger.

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