Foreign Reserve Accumulation and The Increase in Bank Credit in Argentina between 2002 and 2007

This article discusses the accumulation of foreign reserves that occurred in the pe-riod 2002-2007 in Argentina. In addition, it studies how this policy affected the bal-ance sheet of the Central Bank of Argentina and the banking system. For this purpose, we use the theoretical framework of the “money view”. One conclusion is that the policy of foreign reserves accumulation allowed a major increase in bank credit to the private sector. The reason is that the complement of reserve accumulation is an increase in deposits of banks at the Central Bank, which, in turn, increases banks’ lending capacity. In terms of monetary policy lessons, if this increases in private credit generates macroeconomic and/or financial instability and central banks do not want to stop accumulating reserves, the Central Bank may increase liquidity re-quirements for banks. Moreover, while macroprudential regulations regarding the limits to foreign currency holdings were a necessary condition for the accumulation of reserves, so were the financial conditions, especially the interest rate on term de-posits, which induced investors to maintain their investment portfolios in pesos and not to buy foreign currency.