Argentina's elusive quest for remonetization
The Achilles’ heel of the Argentine economy is the lack of remonetization in pesos. Episodes of solid growth with low inflation over the past 50 years occurred in the 1990s (especially 1991–1997) and the 2000s (especially 2003–2007). In both periods, growth with disinflation rested on a strong rise in real money demand — currency in circulation and bank deposits that in turn supported credit expansion. Current remonetization dynamics, in contrast, are slow. Real broad money demand is 12.5% lower than in 2000 and 30% lower than in 2007 despite real GDP being 60% and 25% higher than in those years, respectively. While persistent 2% monthly inflation is part of the story, the more important factor, in our view, is that devaluation risk is materially higher than in either earlier period.
Broad money stood at 140 trillion at the end of 2023. More than two years later it has not yet reached 175 trillion, despite lower observed inflation and a higher level of GDP than in 2023. While persistent monthly inflation is part of the story, the more important factor, in our view, is that expected inflation remains higher and more uncertain than observed inflation. Unlike the 1990s, the nominal exchange rate is not fixed by law. Unlike the 2000s, the real exchange rate is overvalued rather than undervalued. Consequently, devaluation risk is materially higher than in either earlier period.
The FX market now operates without capital controls for individuals. The market is far more stable, transparent, and less distortive than in 2023. However, private demand for dollars remains extremely high — US$2–2.5 billion per month, or US$25–30 billion annually, roughly equal to the full-year trade surplus. The current calm in the FX market therefore masks a large ongoing leakage through private dollar purchases, representing both a forward-looking FX challenge and a continuing drag on peso monetization, credit, and a broader, more sustained recovery.
The central issue remains the economy. 2026 is defined by the tension between reactivation and disinflation. Without a stronger willingness by the public to hold pesos, the BCRA is reluctant to expand the monetary base, liquidity and credit creation remain constrained, and the recovery stays slow and uneven — especially in peso-dependent sectors.
In this report, we review and provide an outlook on Argentina's economy, inflation, fiscal results and politics.
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