Argentina is taking significant steps to dismantle its currency controls and lessen its hold on the peso, as announced by the central bank on Friday. This policy shift, a major one for the country as it closes in on finalizing a $20 billion deal with the IMF, will see the removal of fixed currency pegs. Starting Monday, the peso will be allowed to fluctuate freely within a range of 1,000 to 1,400 pesos per dollar. Additionally, major restrictions on foreign currency access, through the "cepo" capital controls, will be eliminated. Businesses will now have the ability to repatriate profits from the country, which is a crucial demand that could potentially lead to increased investment.

Economy Ministry Luis Caputo stated that lifting these foreign exchange restrictions, imposed in 2019, will allow the economy to function more normally. The new exchange rate system could lead to a significant weakening of the peso if it approaches the lower end of the trading band. However, the central bank is expected to have measures in place to intervene if necessary. The band will gradually expand by 1% each month.

As Argentina awaits the final approval of the IMF board for the $20 billion deal, it aims to boost its depleted foreign currency reserves, combat inflation, and address rising country risk. These funds will also play a crucial role in the removal of currency controls, a move that could exacerbate local market volatility, especially given the ongoing trade tensions between the U.S. and its trade partners.

Economist Ricardo Delgado expressed surprise at the decision to lift controls amidst global volatility and the approaching midterm elections. The $20 billion IMF extended fund facility agreement will entail an initial disbursement of $12 billion, expected to arrive by next Tuesday, with an additional $2 billion becoming available by June.