Narayan AmmachchiMore and more Argentines are depositing their US dollar savings into domestic bank accounts under President Javier Milei’s tax amnesty program, but the goal of full dollarization remains elusive.
Since Milei took office, dollar deposits in Argentine banks have surged by 40%, reaching US$19.8 billion.
Tough a significant increase, the volume pales in comparison to the estimated US$200 billion held by Argentines outside the formal financial system, including in homes, bank lockers and foreign accounts.
The disparity underscores the deep-rooted distrust many Argentines have in their domestic financial institutions, a consequence of the country’s long history of economic instability. While most Argentines earn their wages in Argentine pesos, US dollar savings accounts are common.
Milei’s dollarization initiative aims to substitute the peso with the US dollar. How the president plants to accomplish this remains uncertain, however. It’s been argued that the true purpose of the tax amnesty program is to reintegrate hidden wealth into the financial system.
Under the program, Argentines can declare up to US$100,000 in cash kept outside the system without facing any tax penalties.
For larger amounts, a 5% tax is levied unless the funds are invested in certain sectors, such as real estate or bonds, which allow for tax exemptions. Amnesty will remain in effect until March 2025. Past that date, undeclared funds will face higher taxation.
Despite the surge in bank deposits and the program’s early success, the challenge of restoring Argentina’s economic stability remains immense. The central bank continues to face severe financial difficulties, with its net reserves standing at negative levels. It’s been reported by Bloomberg that the central bank’s liabilities exceed assets by about US$6 billion.
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