When dollar-denominated credits create peso deposits: notes on the recent Argentinean experience

Abstract

This paper explores the mechanisms of endogenous money creation in Argentina, which became more evident due to a “natural experiment” — a fiscal moratorium that triggered a massive inflow of capital during the second half of 2024. This inflow directly contributed to exchange rate stabilization, an improvement in real wages and economic activity, and, more indirectly, to a positive reassessment of creditworthy demand by the banking system. Both direct -or induced demand- and indirect – or autonomous demand- effects, ultimately lead to credit expansion. Furthermore, due to Argentina’s specific regulatory framework, dollar-denominated loans generate deposits in domestic currency while simultaneously increasing the Central Bank´s net international reserves, thus supporting financial stability. We conclude that, while the combination of the moratorium and domestic regulations played a key role in the 2024 stabilization effort, potentially creating conditions for self-sustained stability, the process had only transitory effects and could not be maintained.