Argentina braced for peso to tumble

The value of the Argentine peso is expected to tumble today if the central bank agrees to allow the start of trading after shutting the financial system for four days.

The value of the Argentine peso is expected to tumble today if the central bank agrees to allow the start of trading after shutting the financial system for four days.

The bank unexpectedly banned currency trading for the fourth day yesterday. It blamed the government for being too slow in implementing the last details of its economic plan.

The market has been closed since 21 December as part of a move to protect the country's recession-hit economy from volatile trading.

Yesterday the government, which had already announced it was scrapping the one-to-one peg with the dollar, confirmed an official exchange rate of 1.4 pesos. The fixed rate will apply to international transactions, to prevent a sudden fall in the peso from triggering a surge in imported goods.

However, money changers will set their own rates. Analysts fear that the peso, currently trading at about 1.6 pesos to the dollar, could fall as far as 2 pesos ­ a 100 per cent devaluation.

Some shops have marked up prices on imported appliances such as fridges and televisions by up to 40 per cent, according to reports in Buenos Aires. The government also announced it was converting bank loans of less than $100,000 to pesos on mortgage and small to medium business credits.

The government confirmed news reports that it would ban withdrawals of dollar deposits, totalling about $23bn, for a year. It also raised the amount customers could withdraw in local currency each month to 1,500 pesos (£700) from 1,000 pesos.

Traders said part of the delay in setting up the two-tier exchange rate system was due to the fact officials did not know the rules of foreign exchange after 10 years of having the peso fixed at the same rate as the dollar.

Foreign companies in Argentina, including banks and utility companies from the US, Spain, France and Italy, now face serious losses as their dollar income is converted into a currency with an uncertain value.