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Treasury Secretary Scott Bessent confirmed the U.S. signed a $20 billion currency swap to prop up the Argentine peso on Tuesday. The goal? To raise the peso’s value on foreign exchange markets. The Argentine peso is in trouble because, well, people don’t want it. “The currency is woefully over-valued,” said Mark Sobel, U.S. chair of the Official Monetary and Financial Institutions Forum. “And the market has lost confidence that the value of the currency is sustainable or tenable.”
A bedraggled peso is a problem for Argentina’s government, which is about to face an election.
“If the peso falls, there’ll be an uptick in inflation in Argentina,” said Brad Setser, a senior fellow at the Council on Foreign Relations. “The price of imports will go up. The price of all things will go up.” Not good if you’re trying to win an election.
The way you prop up a currency is by going and buying a bunch of it. “When you buy something, or when you bid on something, the price tends to go up,” Setser said. That’s what the U.S. has been doing — in a very unusual move, by the way. Just buying pesos.
“The U.S. has had to spend a decent amount of money, estimates are close to a half billion, maybe more, and it hasn’t actually had that much of an impact on the currency,” Setser said. |