Argentina's Banks Depend on Agriculture

Amid a steep but anticipated decline in the value of the peso, the Argentine government is forcing banks to sell off foreign exchange reserves. In a ruling issued Feb. 5, the Argentine central bank will require all Argentine banks to cap their foreign exchange holdings to 30 percent of reserves and 10 percent of all futures positions. In effect, the rule will force banks to sell off their holdings of foreign currency and foreign-denominated assets, including bonds and futures contracts.

The move is designed to relieve pressure on Argentina's struggling local currency markets but will reduce the country's long-term buffer against a currency crisis. The development will put increased pressure on the relationship between the Argentine government and the agricultural sector, creating the possibility of greater conflict.