The Financial Times reported late Thursday the U.S. Treasury has intervened in Argentina’s currency market for the first time, aiming to support President Javier Milei amid a run on the peso. Treasury Secretary Scott Bessent confirmed that the U.S. “directly purchased Argentine pesos” on Thursday after Argentina rapidly depleted its own reserves. Since 1996, the U.S. has only intervened in currency markets three times, according to the New York Fed. Bessent also announced a finalized $20bn currency swap framework with Argentina’s central bank, calling the success of Milei’s free-market reforms “of systemic importance.” He stressed that the Treasury is ready to take “exceptional measures” to stabilize markets as Argentina faces a moment of “acute illiquidity.”

The peso strengthened 0.6%, reaching its strongest level in a week, while Argentina’s 10-year dollar bond yield fell to 11.47%, its lowest since September. Argentina’s Economy Minister Luis Caputo expressed gratitude to the U.S. Treasury, praising its “steadfast commitment.” Milei has maintained the peso within fixed exchange rate bands to curb inflation ahead of midterm elections on October 26, selling $1.8bn in reserves over seven sessions. The central bank retains about $13bn from an IMF loan, which can be used to support the currency if it hits the lower limit of the band.

Independent economists have warned that the bands overvalue the peso, with dollar futures suggesting a potential devaluation after the elections. The move mirrors past U.S. interventions, such as the 1994 Mexican peso crisis and the 2011 yen market support. Milei is scheduled to meet former President Donald Trump at the White House on October 14, following four days of discussions between Caputo and Treasury officials.

Rather than turning to a U.S. bank, the Treasury selected Spain’s Banco Santander SA to execute the operation according to Bloomberg. The choice of Santander came down to two key factors: the bank is among a select group of primary dealers in U.S. Treasuries, giving it a long-standing relationship with the Federal Reserve, and it maintains sizeable markets teams in both New York and Buenos Aires. The decision followed several days of talks between U.S. and Argentine economic officials and comes after more than a year of outspoken praise from President Javier Milei toward Donald Trump.

The United States has a long history of intervening in foreign exchange markets, with approaches evolving across nearly two centuries. Early interventions date back to the pre-Civil War period, when the Second Bank of the United States and later the Treasury engaged in gold and currency operations. In the 1920s, the New York Fed under Benjamin Strong conducted sophisticated market operations to stabilize the British pound, setting an early precedent for coordinated central bank actions.

The Exchange Stabilization Fund (ESF), created in 1934 under the Gold Reserve Act, became the Treasury’s primary tool for intervention. The ESF coordinated with foreign central banks during the 1930s and beyond, notably through the 1936 Tripartite Agreement with the Bank of England and Banque de France. During the Bretton Woods era (1961-1973), the U.S. used both ESF and Federal Reserve resources, including swap lines, to defend the dollar and delay speculative attacks, though these interventions ultimately could not prevent the system’s collapse.

Modern interventions have been rarer and highly targeted. The Plaza Accord (1985) successfully coordinated a dollar depreciation among G-5 nations, while the Louvre Accord (1987) stabilized exchange rates after the dollar fell. Since 1996, the U.S. has intervened directly only three times—in support of the yen in 1998, the euro in 2000, and again the yen in 2011 following the Japanese earthquake. More recently, central bank liquidity swaps have emerged as a key tool, used extensively during the 2007–2010 Global Financial Crisis and the COVID-19 pandemic to stabilize global dollar funding markets.

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Argentina’s recent political environment has been a key driver of its elevated default risk and contributing factor to the United States’ intervention. Heightened political instability, weak congressional support, and declining confidence among domestic and international investors have all weighed on markets. President Milei’s reform agenda—focused on fiscal consolidation, deregulation, and market liberalization—initially generated optimism. However, resistance from opposition parties, especially the Peronists, combined with social concerns over the pace and costs of reforms, has destabilized both the political and financial landscape.

Factors Escalating Default Risk

Argentina’s repeated defaults and debt restructurings mean political instability quickly triggers market stress and capital flight. As Milei struggles to maintain the support needed for his reforms, protests, policy reversals, and upcoming elections continue to push up the default risk premium on Argentine bonds.

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