MercoPress. South Atlantic News Agency

Argentina milks more US dollars from commercial banks

The new central bank rule states that from September the net foreign currency position of local banks cannot exceed than 20% of the bank's worth, down from the previous ceiling of 30%. The announceme

Argentina's central bank said on Wednesday it had reduced the amount of dollars commercial banks could hold, a move that should push more greenbacks into the spot market and may give a mild boost to flagging reserves and the local Peso.

 The new central bank rule states that from September the net foreign currency position of local banks cannot exceed than 20% of the bank's worth, down from the previous ceiling of 30%.

The announcement was issued by the BCRA under an official communiqué numbered “A 5627”, which states “no financial entity can have over 20% foreign currency in its patrimony”. The measure applies both to liquid currency and US dollar assets.

The move could provide a brief breathing space to the country's anemic international reserves, which stand at 28.6 billion dollars, if the central bank purchases the US dollars sold by banks and offer some light relief to the ailing peso.

Argentina has eaten into its reserves as the government fights to defend the local currency amid a shortage of hard currency inflows, and an overblown budget deficit.

The Peso has come under increased pressure since Argentina defaulted on its debt again on July 31, sliding 11% against dollar on the black market to 14.210 per greenback. It is down almost 30% so far in 2014.

Tight currency controls compel many Argentines to buy dollars on the black market, which is widely seen as a truer rate of exchange than the official rate, which stood at 8.405 at the close of Wednesday's trading.