Two thousand peso bill, the largest denomination banknote in Argentina, went into circulation on Monday (May 22). However, the rapid depreciation of the nation’s currency has meant that 2000 pesos are worth only USD 8.50 at the official exchange rate. It is just over USD 4 in commonly used parallel markets.
This year alone, the peso has shed around a quarter of its value against the US Dollar. This happened in spite of the strict capital controls meant to slow its fall. Argentinians mostly buy dollars in unofficial markets. In these markets, dollars trade at 480 pesos as opposed to the official rate of 235.
The South American nation is currently battling an inflation rate of 109 per cent. This is one of the highest in the world. A central bank poll estimates that inflation can hit nearly 130 per cent by the end of this year. The interest rates have been hiked to a massive 97 per cent.
Watch | Argentina faces economic crisis as annual inflation goes up
In Argentina, around half of all commercial transactions are still carried out in cash. The new 2000 peso note is expected to partially ease issues that have seen banks run short of vault space and both locals and tourists often carry around bags of cash to pay for things.
“This higher denomination bill will improve the operation of ATMs and at the same time optimize the movement of cash,” the central bank said in a statement on Monday. The largest bank note previously had been the 1,000 peso bill.
The new 2,000 peso banknote has a design commemorating the development of science and medicine in Argentina, the central bank said.
Conditions deteriorate
Even as the central bank has introduced the 2000-peso note, conditions for ordinary Argentinians remain hard. Many of them are converting their pesos into US Dollars since they are looking at the US currency as their only defence against inflation.
But Argentina has imposed restrictions on purchasing foreign currencies. This has fuelled the informal exchange market.
“Economic conditions are deteriorating rapidly and will continue as the electoral process approaches,” said Daniel Kerner, managing director for Latin America at the Eurasia Group, last week. He was quoted by AFP.
“Reserves are at a critical level, with a severe drought hurting export revenues.”
The drought has compounded problems in the economy. It has badly affected the agricultural sector. The sector is vital for the country’s ability to source foreign currency.
Since the start of the year, Argentina has lost more than $5.5 billion in international reserves, which have dropped to $33.5 billion, according to the central bank.
(With inputs from agencies)
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