Imagine a scenario where the federal government decreed how many dollars could be acquired. Foreign companies wouldn’t know for sure when, or even if, their profits would be repatriated. People would need special government authorization to invest abroad or acquire dollars. Foreign investment would stagnate, and dollars would appear on the black market at inflated prices.
This Orwellian and dystopian scenario for any American citizen is the reality for Argentinians since 2011, when President Cristina Fernández de Kirchner introduced currency controls known as the cepo cambiario. The measure was a response to the growing capital flight, the steep decline in international reserves, and pressure on the Argentine peso. In practice, it was a restriction on access to dollars and one of the greatest exchange rate distortions in the modern world.
During this period, the Argentine government did what governments are highly likely to do: create a problem and then create an even bigger one to try to solve it. Kirchner’s administration, deeply interventionist, initiated a cycle of nationalizations, price controls, and policies that logically undermined any potential for growth. Argentina no longer offered an attractive environment for investment.
Citizens’ trust also naturally faded, even institutions like the National Institute of Statistics and Census (INDEC) were accused of manipulating the truth about inflation data in an apparent attempt to preserve the government’s official narrative.
As is natural, Argentines began trading in their pesos for dollars as a form of protection, leading to a collapse of the Central Bank’s dollar reserves. This phenomenon initiated the government’s decision to fix the exchange rate, rather than letting the peso float against the dollar, a policy that generated significant pressure on the reserves. Desperate, the government introduced the cepo, which involved bureaucratic controls over imports, foreign currency purchases, or the ability to repatriate profits.
The cepo became a permanent fixture in Argentina, present through one presidency after another. Even when Center-Right President Macri temporarily eliminated it, he reintroduced it after three years, due to the deterioration of international reserves, budget deficits, rising inflation, and the loss of confidence in the markets, which pressured the exchange rate and the banking system. His successor, Alberto Fernández, reinforced currency controls, turning personal access to dollars into an absurd bureaucratic and economic process, but above all, an intolerable attack on economic freedom, which is ultimately inseparable from individual freedom.
In practice, the cepo meant the Central Bank sold dollars at an official rate far below the free market rate. Until recently, it sold dollars for 400 pesos, while the parallel market, the “blue dollar,” sold them for around 1,000 pesos. This created a distortion and an obvious incentive for arbitrage.
If the Central Bank had enough reserves to meet all demand at the official rate, the market would naturally adjust, but the reserves were exhausted. In this situation, the Argentine state had only two options: either devalue the peso by raising the official exchange rate or ration dollars, restricting who could buy and how much, thus maintaining the cepo.
In recent years, Argentina has done both: devaluing the currency and maintaining exchange controls.
Milei’s victory represented both an unprecedented and radical shift from a society with strong intervention to a classical liberal approach. Naturally, Javier Milei promised to eliminate the cepo.
Eliminating the cepo, however has not been as immediate as some of his ideological supporters would like. Figures like Gabriel Zanotti and Larry White, linked to the Austrian school, have criticized what they consider an excess of gradualism.
Milei, however, had reason to be cautious. He feared that the Central Bank’s fragile finances and high peso inflation could trigger a bank run. As a result, he preserved most cepo controls, recognizing that the shift from an interventionist model to a liberal one had to be gradual.
On Monday, Milei’s long game came to an end when the administration announced it was eliminating the cepo. The announcement came on the heels of agreements that saw Argentina strengthen reserves through deals with the International Monetary Fund, China (a $5 billion swap), and other international institutions, amounting to about $28 billion. This allowed for the elimination of the cepo for individuals and the implementation of a floating exchange rate regime, with a band of 1,000 to 1,400 pesos per dollar.
Through patience, Milei appears to have escaped Argentina’s currency trap. This is no small feat.
Milei inherited a macroeconomic situation far worse than that of his predecessors, one that demanded a phased-in approach despite the ideological pressure. Before eliminating the cepo, Milei needed to devalue the peso, fix the Central Bank liability and money emission scheme, enact deregulations, and slash government spending, or he would have had the same miserable fate as the former President Macri. Only once reserves were sufficient to prevent a bank run could the currency controls be lifted.
It’s also important to bear in mind that Milei governs with a fragile and fragmented parliamentary base. The President of Argentina faced the challenge of balancing ideological coherence with institutional responsibility and the tough, but necessary, realities of political negotiation.
Milei’s success is a reminder that gradualism is not incompatible with institutional responsibility. From a careful handling of these forces, the path to economic freedom will emerge not as a rhetorical ideal, but as the only credible path to lasting prosperity and stability.
Milei’s plight is only necessary after the country, once considered one of the richest in the world, fell into deep economic instability, poverty, and decadence, a warning to Americans. Wealth is created; it is not guaranteed, and can be destroyed by bad economic policies.
A trade war derived from protectionism, excessive spending, and mismanagement of the money supply are all paths to the same fate as Argentina.
