Argentina is looking to replicate the “Uruguayan model” of a dual-currency payment system, which allows transactions in both the national peso and the US dollar. This approach aims to provide consumers with flexibility and could help stabilise the economy amid ongoing inflation, which recently pushed to over 100%.

Multiple exchange rates - official, blue and financial - confuse and complicate the implementation of the dual payment system. “It could work well in the future but cannot be implemented now with so many different peso/ dollar exchange rates in place,” informed an executive working in a large Argentinian bank. However, “the actual restrictions on foreign currency operations, 'cepo cambiario' is a barrier for the dual pay system to work.” The executive continued, “People would be punished for selling their dollars at the official rate and there is a limit for individuals to buy dollars at the official rate, the cap being USD 200 per month.”

“the actual restrictions on foreign currency operations, 'cepo cambiario' is a barrier for the dual pay system to work.”

Executive in a large bank, Argentina

Lifting or easing these restrictions will be necessary to enable a functioning dual-currency environment where both pesos and dollars can circulate freely. Another finance executive commented, “If the cepo is not lifted by the end of the year, President Milei will lose people’s confidence.” Despite some drawbacks, reducing the PAIS tax, which implied higher taxes for imported goods, “is a good signal that the government is more relaxed on the influx of foreign currencies.”

An executive of a private national bank elaborated, “With respect to the Uruguayan system, it could work [in Argentina] without problems. However, it should always be considered that, although they are neighbouring countries, their banking and exchange systems are very different.” In the first phase, “we can only hope it will be implemented correctly. Still, it will not have a major impact, at least in economic or financial terms,” asserted the finance executive.

Controlling inflation is critical. Argentina aims to reduce inflation to manageable levels, around 2% monthly, “as the official devaluation rate for the peso established by the Milei administration.” The source agreed it would stabilise the economy and boost confidence in the peso. Without inflation control, further dollarisation may erode the local currency’s role.

Adequate central bank reserves are essential to support financial stability and public trust. Authorities estimate reserves of around USD 40 billion will be necessary to back the system and avoid a currency crisis. “To reach this level, there should be either an increase in exports, new debt emission or an important loan from the IMF.” The financial executive continued, “The latter situation will be more probable if Trump wins the election because of his ideological affinity with President Milei and because it would be good marketing for both.”

Regulatory adjustments will also be needed to ensure smooth system operation. This includes clear guidelines for financial institutions, digital platforms and businesses to facilitate transactions in both currencies while ensuring compliance with broader monetary policies. “At the moment it seems unlikely that this will help the local economy, it is an operation that could have an impact over time, not in the short-term.” The other financial source agreed that “a stable financial system would help [Argentina] move away from a still large informal economy.” Concluding, “Argentina’s economy is on a level of informality close to Mexico.”

Authorities are working on a timeline for implementation, with expectations of launching pilot programmes within the next 6 to 12 months. “The positive side for financial institutions is they assume that, if the government is pushing for an early implementation of the new system, it is because it is thinking of an early release of the cap,” informed the bank executive.

“The positive side for financial institutions is they assume that, if the government is pushing for an early implementation of the new system, it is because it is thinking of an early release of the cap.”

Executive of a private national bank, Argentina

Currently, around 70% of transactions in Argentina are conducted in cash, highlighting the need for digital upgrades. Banks may also develop specialised products, such as dual-currency accounts or loans, to facilitate this system. Collaborating will be essential; for example, recent efforts in Uruguay showed that clear guidelines helped improve the effectiveness of their dual-currency system. By 2023, more than 70% of bank deposits in Uruguay were still held in US dollars.

Argentina’s attempt to replicate the “Uruguayan model” of a dual-currency payment system could lead to several future opportunities, including better cross-border trade, as businesses become more comfortable dealing in dollars. It may also help innovation in digital payment solutions, encouraging fintech startups to develop new services tailored to this dual-currency environment. Argentina has grown significantly, attracting over USD 1 billion in investments recently. As the sources unanimously concluded, “The success of all these measures and Milei’s programme depends on him keeping people’s trust” for these policy decisions that lie ahead. Not such an easy task.