Mattress Reserves & Currency Runs
The Milei admin is banking on Argentines reinserting their dollar savings
Welcome Avatar! The Milei admin is banking on Argentines reinserting their mattress dollar savings back into the economy, and new regulatory changes have already been implemented to accommodate that flow. But will it be enough to start significantly increasing BCRA reserves?
While the economic team of the Milei administration is trying its best to get Argentines to insert their savings back into the economy, the opposition is busy concocting a story of a lagging exchange rate — despite no more cepo — and an artificially overvalued peso, and assures that this is a powder keg ready to blow up right after the October midterms.
Yesterday, Milei bestie and radio host Alejandro Fantino — who did a record 5 hour long interview with the President last month—, voiced his concern about this historic pattern of blowing up the exchange rate on purpose yesterday:
“Next year, the blow will come from the economy. They're going to launch a run on the dollar, prices will skyrocket, the dollar will go to 1,700, 1,800 pesos, they're going to try to make it happen.
They did it to Macri, who's theirs, he's theirs. Mauricio belongs to that system. And they did it to him. He said so. They're going to do it to this President. […]
the story has changed, it's not about going to fight with the fatso unionists of the CGT, another plan will be defined, this will be economic, it will be 2 or 3 currency runs.”
Argentines don’t have to dig deep to get to a similar episode: during Macri’s administration a similar devaluation ensued in 2018 after close to two years of exchange rate stability without currency restrictions, and it all went downhill from there.
At the moment prices continue to climb because inflation is still present — albeit a lot lower —, and since the peso actually appreciated since the lifting of the exchange rate restrictions, Argentina is getting close to Uruguay pricing in dollar terms. This combination fuels the explosive devaluation thesis, since… that’s the way this molotov cocktail has always ignited in the past.
Is there some merit to this, or will it be smooth sailing and deflation from here? Let’s find out.