Argentina's Peso Is Expected to Face Pressure This Week --- Dollar Buying, Untangling Of Bank-Account Rules To Weigh on Currency
Freed from its tether to the U.S. dollar for the first time in more than a decade, the Argentine peso is expected to come under renewed pressure this week as the government works out how to untangle bank-account restrictions and financial institutions become more active in foreign-exchange markets.</br></br>The peso lost about 40% of its value Friday, the first day of trading since the government last week replaced Argentina's one-to-one peg with the dollar with a dual exchange-rate system. Under the new system, trade and some financial transactions will be covered by a fixed exchange rate of 1.40 pesos to the dollar, while Argentines seeking to buy or sell dollars for other transactions will have to do so on the open market where the peso will float freely.</br></br>In Friday's trading, the peso closed around 1.70 pesos to the dollar, but the bulk of activity was at the small exchange houses that had languished during the past decade when the dollar and peso were used side by side. Banks received rules from Argentina's central bank on how the new foreign-exchange market would function about 12 hours before markets opened, and opted to sit out the session. Meanwhile, the financial system has already been struggling to cope with operational complications resulting from the restrictions on cash withdrawals imposed at the start of December and limits on account movements imposed subsequently.</br></br>Demand for dollars, so far, has been muted because people are short of cash in pesos for buying groceries and paying routine bills. Some economists are forecasting the peso will slump this week to 1.8-2.0 to the dollar as banks become more active in the foreign-exchange market and the government considers reversing recent decisions to slowly lift the bank limits. Leaving the limits on too long is likely to exacerbate a recession already in its fourth year and spark greater social unrest; suddenly scrapping them could cause the banking sector to collapse.</br></br>Late Thursday night, residents of several middle-class neighborhoods took to the streets again to protest further banking restrictions introduced by the administration of President Eduardo Duhalde. Over the weekend, Argentine press reports said the government was considering allowing account holders to access frozen funds to make big-ticket items, such as cars or homes, in order to perk up consumption. The government is also considering providing such special access to pay off credit-card debts and other obligations that cannot be postponed, the reports said.