Argentina Devaluation Would Test US$49.7bn

A devaluation is an official increase in the peso price of the US dollar. For example, if the official rate moved from 1,500 to 1,800 pesos per dollar, the peso would be weaker. Dollar holders would receive more pesos for each dollar, while peso earners would need more pesos to buy dollars.

Argentina currently keeps its wholesale dollar inside a band. The band’s ceiling rises with inflation, with a two-month lag. On 30 September, the wholesale rate was 1,517.52 pesos per dollar, while the ceiling was expected near 1,951 pesos at October’s end. A devaluation could mean moving the official rate higher, gradually or suddenly.

The size and speed would matter. Economist Mara Pedrazzoli said a gradual adjustment might pass into prices only partly because demand is weak. She said an abrupt jump would have stronger inflationary effects. The article leaves open whether the government will let the dollar rise.

Reserves matter because they are a central bank’s stock of foreign assets. Argentina’s investors watch them alongside prices because Argentine bonds and New York-listed shares depend on both. A weaker peso could make the dollar value of local assets less attractive and increase concern about whether the central bank can support confidence.

The warning sign is the gap between purchases and accumulation. From 1 January to 13 October, the central bank bought US$15.21 billion, but gross reserves increased only US$8.75 billion, reaching US$49.85 billion. Operations with international organisations and other public-sector operations reduced reserves by substantial amounts.

That makes a devaluation a test of both policy and confidence. If the official dollar rises abruptly, inflation could accelerate, as Pedrazzoli warned. The article does not predict a reserve crisis. It says the government still faces an open choice over whether to let the dollar rise.

Argentina’s central bank bought US$15.21 billion from 1 January through 13 October. That figure measures foreign currency purchased in the market during the year. It does not mean the same amount stayed in the reserve account, because other transactions can reduce the stock of reserves.

Gross reserves actually rose by US$8.75 billion, reaching US$49.85 billion. The difference between purchases and the increase was US$6.46 billion. The article’s series identifies several offsets, including operations with international organisations, other public-sector operations, bank reserve requirements, and other items.

The largest listed deductions were US$4.69 billion from international-organisation operations and US$3.04 billion from other public-sector operations. Bank reserve requirements added US$1.32 billion, while other items removed US$0.06 billion. The data do not provide enough detail to identify the causes of every outflow.

A weaker peso changes the relationship between local prices, dollar values, and incomes. Imported goods and costs can become more expensive in pesos, which may feed consumer inflation. For people holding dollars, each dollar buys more pesos after a devaluation. Visitors paid in dollars could therefore gain purchasing power.

Argentina’s recent figures show why the concern is real. The wholesale dollar rose 4.0% from late December to late September, but consumer prices climbed 23.6% in the first nine months. By the article’s calculation, Argentine goods became about 19% dearer in dollar terms, ignoring US inflation. A sudden jump could have stronger effects than a gradual adjustment.

US holders of Argentine bonds and New York-listed shares face both price and currency risk. Inflation can reduce the value of local returns, while a weaker peso can reduce dollar-denominated value. The article leaves open how much of any exchange-rate move would reach prices in a weak economy.

Argentina experienced two very different exchange-rate jumps. On 13 December 2023, the official wholesale rate rose 118%, from 366.50 to 799.98 pesos per dollar. Monthly inflation was 12.8% in November, then surged to 25.5% in December and 20.6% in January 2024.

Inflation subsequently slowed to 13.2% in February and 11.0% in March 2024. The later episode was much smaller. Between 11 and 14 April 2025, the official rate increased 9.6%, from 1,078.38 to 1,182.42 pesos per dollar. Monthly inflation was 3.7% in March, 2.8% in April, and 1.5% in May.

These figures show different outcomes after different-sized moves. They do not prove that the exchange-rate changes alone caused inflation, because other policies and economic conditions also changed. The article uses the episodes as context, not as a precise estimate of the dollar’s isolated effect.

Buying dollars is only one part of the reserve calculation. Gross reserves reflect purchases plus deposits, payments, and other operations that add or remove foreign currency. So a central bank can buy heavily while its reported reserve stock grows much more slowly.

Argentina’s figures provide a clear example. From 1 January to 13 October, the central bank bought US$15.21 billion. Gross reserves rose only US$8.75 billion, producing a US$6.46 billion gap. The data list US$4.69 billion in operations with international organisations and US$3.04 billion in other public-sector operations as deductions.

Some items moved the other way. Bank reserve requirements added US$1.32 billion, while other items removed US$0.06 billion. The series does not explain the detailed causes of every outflow. Pedrazzoli described the pattern as buying without accumulating reserves at the same pace.

A currency can become overvalued in practical terms when local prices rise much faster than the exchange rate. The exchange rate tells how many pesos buy a dollar. If that rate barely changes while wages and goods become more expensive in pesos, a dollar buys relatively fewer Argentine goods than before.

Argentina’s 2025 figures illustrate the mechanism. The wholesale dollar rose 4.0% from 30 December to 30 September. Consumer prices rose 23.6% during the first nine months. By the article’s calculation, Argentine goods were about 19% more expensive in dollar terms, ignoring US inflation.

This can make Argentina increasingly pricey for people comparing prices in dollars. The article says the exchange-rate band’s ceiling rises with inflation, with a two-month lag, while the peso remained below that ceiling. Whether the government allows a higher official dollar, and how much reaches prices, remains unresolved.