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Argentina to relax foreign exchange controls | Argentina to relax foreign exchange controls |
(about 7 hours later) | |
Argentina has announced it will lift its currency controls which were imposed four years ago to prop up the peso. | |
The move is expected to lead to a sharp devaluation of the peso. | |
President Mauricio Macri hopes it will boost exports and spark economic growth. | |
But consumers fear it could further drive up Argentina's already high inflation rate, | |
Argentina has been plagued by financial volatility in recent decades with inflation running at around 25% according to private estimates. | |
Some retailers also expressed concern that shoppers would be cautious in the short term as they see their purchasing power reduced. | |
The country's previous leader, Cristina Fernandez de Kirchner, used central bank reserves to prop up the peso. | |
But Mr Macri, who was elected last month and inaugurated on Thursday, had vowed to change the policy. | |
Market watch | |
The peso will be allowed to float when markets open on Thursday. | |
Analysts predict a fall of up to 30% from the current controlled rate of 9.8 pesos to the dollar. | |
They say they expect it could fall to 14.5 pesos to the dollar, the rate at which the currency has been trading on the black market, | |
Analysis: BBC's Ignacio de los Reyes in Buenos Aires | Analysis: BBC's Ignacio de los Reyes in Buenos Aires |
The Argentine economy is so dependent on US dollars that grandmothers give their grandchildren 10-dollar bills as birthday presents and adults hoard them under the mattresses. So that is why in dollar-addicted Argentina, the end of the "cepo" or exchange controls was anxiously expected. | The Argentine economy is so dependent on US dollars that grandmothers give their grandchildren 10-dollar bills as birthday presents and adults hoard them under the mattresses. So that is why in dollar-addicted Argentina, the end of the "cepo" or exchange controls was anxiously expected. |
The government of Cristina Fernandez de Kirchner tried to end the buying of dollars four years ago, but prohibition simply fuelled the black economy. | The government of Cristina Fernandez de Kirchner tried to end the buying of dollars four years ago, but prohibition simply fuelled the black economy. |
Since then, a legion of informal street sellers in Buenos Aires' main thoroughfare, Paseo Florida, offer foreign currency at much higher rates than the official one which is extremely hard to buy legally. | |
Argentines also found other creative ways to circumvent restrictions, from organised day-trips to neighbouring Uruguay to get US dollars from cash machines to Bitcoin trading. | Argentines also found other creative ways to circumvent restrictions, from organised day-trips to neighbouring Uruguay to get US dollars from cash machines to Bitcoin trading. |
The new policy may satisfy middle and upper-class Argentines who will now be able to get their dollars freely. | |
But they are also fearful of the consequences: higher prices and a potential devaluation of their currency. | But they are also fearful of the consequences: higher prices and a potential devaluation of their currency. |
Argentine Finance Minister Alfonso Prat-Gay said he accepted the rate would weaken to "close to" 14.2 to the dollar. | |
He said the central bank had been given the right to intervene if the exchange rate fell too quickly. | |
But he was adamant that change was needed: "The old system had killed the goose that laid the golden egg" by restricting the growth of the economy. | |
He outlined that exchange controls would end for all businesses who would be allowed to buy as many dollars as they needed. | |
But he said, for the time being, ordinary Argentines would still face restrictions on the amount of dollars they could buy a month. |