Argentine Peso Drops To A 5 Month Low Amidst Political And Legal Woes

There has been a sudden decline in the Argentine Peso against the US dollar, as it dropped to a low of 5 months in its blue rate.

This is one of the numerous parallel exchange rates that can be found in the country. Holiday-related payments resulted in an abundance of pesos, which was one of the reasons for the drop.

Another reason was the battle between the Argentine courts and President Alberto Fernandez.

Peso declines

There is a sudden downturn in the Argentine peso, which has brought the currency’s value to historic lows.

Several informal exchange rates operate in Argentina and according to local media, one of them denominated as the ‘blue dollar’ has reached a value of 340 pesos against the US dollar.

This is the lowest the currency has been in five months after it had been able to maintain its value for some time and remained steady.

It was back in July that the peso had plunged in a similar manner and that was also because of the political instability in the country, as Martin Guzman, the Finance Minister of the country had resigned.

The minimum exchange rate that the Argentine peso had reached against the US dollar was 350 and this it had done in the month of June.

The reasons

There are a number of explanations that analysts have proposed for the current situation, which include a greater number of pesos on the street because of the holiday season.

In addition, the Argentines are also rushing to foreign currencies in order to hedge their savings. But, once more, there are also political reasons that have to be factored in.

The maximum justice tribunal of Argentina had taken a decision that the country’s president, Alberto Fernandez, decided to ignore.

The decision would see a bigger percentage of taxes go to the city of Bueno Aires, which are collected at a provincial level.

On December 21st, the national government was ordered by the tribunal to give about 2.95% of the collected taxes to the city.

Uncertainty

This situation has given rise to legal uncertainty in the country and some analysts have said that it has taken a toll on the value of the Argentine peso.

In addition, they also said that it is expected to continue doing so in the future as well. Miguel Kiguel, the former Finance secretary, said that this decision gives rise to other concerns as well.

He stated that it would be logical for people to ask questions regarding contract fulfillment. After all, if the government chooses to ignore a Supreme Court ruling, then it is natural to wonder what will be fulfilled and what won’t.

The credibility suffers due to this battle and this means that investors have to turn to US dollars for hedging their savings.

Subsequently, it leads to these movements in the exchange rate. Another country that has also had to deal with similar problems with its fiat currency valuation is Venezuela.