Argentina’s central bank has announced a $20 billion currency swap agreement with the U.S. Treasury Department, just six days before the country’s midterm elections.
The deal is aimed at stabilizing the Argentine peso and strengthening the country’s ability to manage foreign exchange and market volatility, according to Reuters.
Purpose of the swap deal
The central bank, known as BCRA, said the agreement sets the framework for bilateral currency swap operations with the United States. These operations will allow the central bank to expand its tools for monetary and exchange rate policies. However, the bank did not provide technical details about how the swap would work.
Peso hits record low
The Argentine peso has been under strong pressure, hitting a record low of 1,475 per U.S. dollar, down 1.7% in trading on Monday, 20 October. The BCRA said the swap deal is part of a broader strategy to improve its ability to respond to sudden shifts in the currency and capital markets.
U.S. Treasury support
U.S. Treasury Secretary Scott Bessent said last week that the deal would be supported by International Monetary Fund (IMF) Special Drawing Rights, which would be converted to dollars. He emphasized that the U.S. will not impose additional conditions on Argentina, other than the government continuing its fiscal austerity and economic reform programs to encourage private-sector growth.
Analysts raise concerns
Since 9 October, the U.S. Treasury has bought pesos in the market, although the exact details have not been disclosed. Some analysts, including former U.S. Treasury official Brad Setser, believe the peso may be overvalued, citing strong imports, outbound tourism, and Argentina’s failure to meet IMF reserve targets. They warn that the U.S. is taking a financial risk by supporting the peso.
Election timing and political context
Several major U.S. banks, including JPMorgan Chase, Bank of America, and Goldman Sachs, were reportedly hesitant to lend $20 billion to Argentina without guarantees or collateral.
The timing of the swap deal comes just days before the 26 October midterm elections, in which President Javier Milei’s party hopes to increase its minority presence in parliament. Milei’s government has been cutting spending and reducing the size of government.
While U.S. President Donald Trump suggested that the U.S. might end support if Milei’s party loses, Bessent clarified that continued assistance depends on Argentina’s economic policies, not the election outcome.
The $20 billion currency swap is seen as a key step to stabilize Argentina’s economy and support the peso during a challenging election period.
FAQs
1. What is the $20 billion Argentina-U.S. currency swap deal?
The deal is an agreement between Argentina’s central bank (BCRA) and the U.S. Treasury to exchange dollars and pesos, helping stabilize Argentina’s currency and strengthen monetary policy tools.
2. Why did Argentina sign this deal before the elections?
The agreement was finalized days before Argentina’s midterm elections to support the peso and manage market volatility, while also giving the government more flexibility to pursue fiscal and economic reforms.
3. How will this deal affect the Argentine peso?
The swap provides the Argentine central bank with U.S. dollar support, helping reduce pressure on the peso and improving confidence in the currency amid economic and political uncertainty.
