Monetary Aggregates, International Reserves and Inflation Dynamics in Argentina

Monetary Aggregates, International Reserves and Inflation Dynamics in Argentina Evidence from a Reserve-Backing Model (September 2025) Jorge A. García Pasquinelli Independent Macroeconomic Consultant Buenos Aires, Argentina Abstract This paper analyzes inflation dynamics in Argentina using a monetary-reserve backing framework that links monetary aggregates (M1, M2, M3) with international reserves held by the Central Bank. Using data for September 2025, the study derives implicit exchange rates associated with different levels of monetary liquidity and compares them with observed financial exchange rates. The results indicate a persistent misalignment between broad money expansion and reserve accumulation, which explains both observed inflation and latent nominal pressures. Scenario-based projections at three- and six-month horizons reinforce the conclusion that, without a change in monetary or external conditions, inflationary pressures are likely to persist. Keywords: Inflation, Monetary Aggregates, International Reserves, Argentina, Exchange Rate. JEL Classification: E31, E51, F31. 1. Introduction Argentina has historically exhibited high and persistent inflation, closely linked to monetary imbalances and external constraints. In a bimonetary economy, the relationship between domestic liquidity and foreign currency reserves plays a crucial role in shaping expectations and price formation. This paper contributes to the literature by applying a reserve-backing model that quantifies nominal pressures through the ratio of monetary aggregates to international reserves. 2. Data The analysis uses official data published by the Central Bank of Argentina (BCRA) for September 2025. Monetary aggregates are expressed in nominal pesos, while reserves are measured in U.S. dollars. Variable Value Unit International Reserves 32,745 USD million M1 49,580,969 ARS million M2 79,264,708 ARS million M3 150,720,284 ARS million 3. Methodology Implicit exchange rates are computed as the ratio between each monetary aggregate and international reserves. This indicator represents a theoretical backing exchange rate rather than a market price, and serves as a measure of nominal tension within the monetary system. 4. Results The implicit exchange rate derived from M3 reaches approximately 4,600 ARS/USD, significantly above the observed financial exchange rate. The resulting gap suggests that part of the monetary overhang has not yet been fully absorbed by prices or exchange rate adjustments. 5. Inflation and Model Validation Monthly inflation during July–September 2025 ranged between 3.2% and 3.8%, consistent with the presence of underlying monetary pressure identified by the model. This alignment supports the validity of the reserve-backing approach as an early warning indicator. 6. Prospective Scenarios Scenario analysis at three- and six-month horizons shows that, under baseline assumptions, implicit exchange rates would continue to rise unless reserve accumulation accelerates or monetary expansion slows materially. 7. Conclusion The findings confirm that Argentina’s inflationary process remains fundamentally monetary in nature, conditioned by external constraints. The reserve-backing model provides a consistent framework for interpreting current inflation and assessing future risks. References Banco Central de la República Argentina (2025). Monetary and Financial Statistics. García Pasquinelli, J. A. (2025). Monetary Backing Models and Inflation in Argentina.