Argentina bill seeks to ban central bank from financing Treasury
President Javier Milei's government submitted a bill to congress that would overhaul the central bank's charter to strictly prohibit monetary financing of the government, a critical step toward breaking Argentina's cycle of fiscal dominance and high inflation.
Argentina’s executive branch submitted a comprehensive central bank charter reform to the Chamber of Deputies on Friday. The legislation will enter the parliamentary record on Monday before heading to committees, with the government targeting passage by August.
For sovereign debt holders and currency traders, the bill represents a structural attempt to sever the historical link between the central bank and the Treasury. If enacted, it would formally end the practice of monetizing public deficits that has driven Argentine inflation for decades.
The legislation anchors the institution with a single mandate to preserve the value of the currency. This replaces the multi-mandate framework established in 2012 under Cristina Fernández de Kirchner, which included employment and economic development. The bill's rationale states that "a central bank charged with everything cannot be held accountable for anything."
To enforce this new focus, the text completely bars the central bank from financing the public sector. It repeals temporary advances and prohibits loans to the national government, provinces, and municipalities, while banning primary market purchases of government debt. The government noted that under current rules it could have transferred 36.6 trillion pesos to the Treasury, representing more than 80% of the monetary base. As of April 2025, non-transferable notes on the bank's books totaled $69.4 billion.
The reform also restricts profit distributions, directing any transfers specifically toward cancelling public debt. Only realized, liquid earnings not derived from exchange rate movements or gold valuations could be distributed, and reserves must first reach 50% of the bank's capital. This eliminates the mechanism used by every administration since the end of convertibility to remit accounting gains from exchange rate differences to the Treasury.
On governance, the bill protects board members from political removal except for serious, manifest failures. Dismissal would require an executive decree backed by a two-thirds majority in both chambers, scrapping the mechanism used to remove Martín Redrado in 2010. It also eliminates the Economy Ministry representative from board meetings and strips the bank of powers to direct credit to small businesses.
The central bank overhaul accompanies a broader legislative package featuring a "fiscal shackle" to curb state spending during sustained deficits, alongside capital markets and insurance reforms. However, the administration's agenda faces an immediate hurdle, as Santiago Bausili's appointment as central bank president still lacks Senate confirmation.
