Yesterday, the IMF (International Monetary Fund) announced a “staff-level agreement” that gives Argentina access to approximately $5.3 billion. They got the approval by signaling new fiscal and monetary discipline.
But there is so much more
Argentina’s Money Crises
A typical person in Argentina has a $5 electricity bill because of government subsidies. Transport, gas, and water also benefit from government support. Furthermore, inadequate revenue has shifted more pension expense to the government rather than private contributions. With annual inflation estimated at 101.7 percent, the result is an upward spiral of spending as prices and benefits rise.
Argentina has tended to overprint money to cover its expenses. It has also borrowed money that it could not pay back. In 2005, after defaulting, its debt involved 152 kinds of bonds and six currencies. In 1990, when the government froze bank accounts, savings evaporated. Recalling the past and concerned with the future, people are worried about the peso. They perceive a government that has limited money from leaving and entering the country and threatened the safety of their saving.
The result? A preference for crypto.
Argentina is one of nine countries with the highest adoption of cryptocurrency. Including bitcoin, etherium, tether, and dai, demand for cryptocurrency is growing. According to a Bloomberg Crypto podcast, Argentinians disapprove of what their central bank is mandating. Many do not trust their currency.
Our Bottom Line: A Preference For Crypto
I cannot say if the preference for crypto is correlation or causation. I can say though that all of us really care about our money being real money. That means we need to be able to use it as a medium of exchange. In other words, people need to want to accept it for payment. Also, money needs to act as a unit of value. (With $4, I know I can buy a Starbucks latte.) And finally, it should store value. What I place in the bank or a mattress today should have similar spending power next year.
Below, seeing Argentina’s inflation rates, you can understand the migration to crypto. (Do keep in mind that the U.S. inflation rate target is 2 percent.):
Still, I find it mind boggling that people seem to believe that cryptocurrency is more dependably money than Argentina’s peso.
I should add that the Bloomberg podcast told me that the crypto people did not want government in their lives. But also saying crypto was a way to protect their savings, they preferred crypto paychecks. Maybe we just have a convergence of philosophy and practicality.
My sources and more: Thanks to the Bloomberg Crypto podcast for alerting me to Argentina’s cryptocurrency preference. From there, I discovered more detail at the BBC, local news, Foreign Policy, and Yahoo. And, for the academic perspective, we have this Rogoff Reinhardt paper and an IMF document.
