In a context marked by economic uncertainties and tensions in the exchange markets, the net reserves of the Central Bank of the Argentine Republic (BCRA) have had a striking but worrying evolution. Despite having registered the largest purchase of dollars in more than two decades, the net reserve position remains as compromised as at the beginning of the year.
According to a recent report by the consulting firm Outlier, as of November 30, 2024, net reserves were at a worrying deficit of 8,471 million dollarsbarely US$253 million above the end of 2023. This data contrasts drastically with the US$18,000 million acquired by the entity throughout the year. The divergence between these figures reflects the deep structural challenges that the Argentine economy faces in stabilizing its financial front.
A year of contrasts: purchases and commitments
The year 2024 began with an encouraging pace in the accumulation of reserves. Between November 2023 and May 2024, the BCRA managed to buy US$16,472 millionthus even improving the closing of the previous year, partially reducing the deficit in net reserves thanks to greater agricultural liquidations and “carry trade” strategies. However, this trend failed to consolidate.
Beginning in June, the decline in net reserves began to accelerate, driven by significant debt maturities, particularly in July. The need to comply with these obligations was key to explaining the fall in net reserves, which, after reaching a rebound that placed them at negative US$2 billion, returned to worrying levels.
In addition, growing market pressure led the BCRA to implement a strict monetary rule, linking each issuance of pesos for the purchase of dollars to the obligation to withdraw those pesos from the market through the sale of foreign currency. This approach, designed to stabilize exchange rate gaps, was successful in controlling volatility, but at a high cost: the inability to rebuild net reserves in a sustainable manner.
The weight of the exchange gap
The dynamics of the exchange gap is crucial to understand why net reserves failed to improve despite resuming the purchase of dollars with the arrival of money laundering. With a gap of 60%, the BCRA can accumulate approximately $38 decade u$s100 acquired, while, with a gap of 10%, that figure is reduced to just $9. Even in scenarios where the gap is negative, the entity would have to sell more dollars than it buys to absorb issued pesos, a vicious circle that reinforces the structural fragility of the exchange system.
The impact of money laundering and carry trade operations
The money laundering introduced in September brought with it an increase in dollar deposits, which translated into higher gross reserves due to bank reserves. However, this entry did not have a positive impact on net reserves, since carry trade operations, stimulated by the new liquidity in the system, forced the BCRA to get rid of dollars to repurchase pesos.
Looking forward: the challenges of 2025
The outlook for 2025 looks complex. The persistent weakness of net reserves leaves the country in a position of extreme vulnerability to any disruptive event, such as an abrupt jump in the exchange rate or the need to finance an economic recovery.
Furthermore, the government’s strategy of postponing the elimination of the exchange rate trap and seeking new agreements with the International Monetary Fund (IMF) underlines the urgency of obtaining external financing. Without a significant flow of fresh dollars, the possibilities of stabilizing the economy and preparing the ground for an eventual normalization of the exchange market seem distant.
The evolution of the BCRA’s net reserves in 2024 reveals a combination of structural and political limitations that have slowed its recovery. Although temporary advances were made at certain times of the year, the impact of debt, exchange rate dynamics and monetary restrictions have prevented significant strengthening. Looking to the future, the recomposition of net reserves will be essential to face the challenges of economic stability and move towards an economy less dependent on exchange control measures.
The ability of the Government and the BCRA to reverse this trend will depend not only on international agreements and the internal management of monetary policy, but also on the building of trust in the market, an asset that remains scarce in the current Argentine economic context.
Source: Ambito
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