Why Argentina should adopt Bitcoin and not dollarize.
The refusal of King George to allow the colonies to operate an honest money system, which freed the ordinary man from clutches of the money manipulators was probably the prime cause of the revolution.
- Benjamin Franklin. Founding father of the United States, drafter and signer of the Declaration of Independence.
Opinion article by Martín Ungar.
Argentina’s relationship with the U.S. dollar is long-standing and conflictive. After the United States, Argentina is the country with the most dollars in circulation. This is, of course, hoarded in private hands, in safety deposit boxes or as it is more popularly known “under the mattress”. This situation presents an important dichotomy for the State, how can it be that the second country with the most dollars is in a perpetual fight to get them? The answer to this question is long and complicated, but I will try to summarize it in the following paragraphs.
The original sin
Starting first with Argentina’s “original sin”: the socioeconomic distribution of land, which is very different from that of the United States. There, the land was divided among the pioneers after the so-called “conquest of the west”, which gave birth to the farmers. This socioeconomic group was the foundation on which the economy of that country was built. Small farmers who had to innovate with new techniques and invest in new machinery to make their plots yield and thus survive. This search for higher yields and efficiency is what made farmers have to implement new production methods to add value to their natural resources.
The Argentine case was very different, after the “conquest of the desert” the lands were divided among small aristocratic families who had financed the war of land usurpation. This led to the creation of latifundios, large hectares of mostly fertile land. The aristocracy, owners of these large estates, never had any economic incentive to innovate agricultural production techniques or invest in new machinery. Since the vast fertile fields were in themselves sufficiently profitable (thanks also to the quasi-slave labor employed in the fields), the aristocracy never had any economic incentive to innovate agricultural production techniques or invest in new machinery.
The concentration of economic power in a small landowning aristocracy is what led to the concentration of political power in the city of Buenos Aires, where the main port for the export of non-value added natural resources to Europe and the United States is located. Thus contributing to the development of a Unitary country where all railroads lead to the port, an essentially extractivist country.
Known as the breadbasket of the world in the last years of the 19th century, Argentina was unable to use this period of economic bonanza to industrialize and modernize its productive capacity due to its socioeconomic structure and land distribution. The failed attempts to industrialize through import substitution (1930–1955) and Frondizi’s developmentalism (1958–1962) demonstrate the lack of economic incentives and the strong opposition of the national landowning elite together with the imperialist hegemonic powers to transform Argentina into an industrialized country.
The pesticide and transgenic seed revolution of the 1990s further consolidated Argentina as a mere exporter of raw materials with little or no industrial value added. Since then, the country has entered a death spiral, in which the only productive and foreign exchange generating sector is the agricultural sector. This sector is capable of sustaining the expansion of the fiscal deficit in macro-economic periods of rising commodity prices, but when commodities contract, they cause major and profound social, economic and financial problems. These are always solved by the ruling political class, with credits from international organizations such as the International Monetary Fund, the World Bank and the Paris Club.
The never ending story
Now we are in the year 2023 and the movie is repeating itself. High inflation levels, lack of reserves in the Central Bank, fall of the gross domestic product, high level of fiscal deficit, uncontrolled issuance of Pesos, child poverty and indigence, loss of purchasing power. If the reader is Argentinean, he/she will not be surprised by this description of our country. This history that repeats itself over and over again is what leads Argentines with disposable income to save in US Dollars or in properties. Valued in foreign currency since the dollarization of the real estate market that took place during the economic management of Martinez de Hoz during the last civil-military dictatorship.
The economic black swan, which meant the recent pandemic, led the world’s main central banks to issue a large amount of currency to avoid a global economic collapse. This unprecedented and uncontrolled issuance of fiat money by the world’s major economies further accelerated the time bomb that is Modern Monetary Theory.
The Bretton Woods system established in 1944 crowned the United States as the only economic superpower and the clear winner of the Second World War. This agreement between the Allies established and guaranteed the convertibility of all currencies into US Dollars and the backing of the dollar in gold. It also established the infamous International Monetary Fund as an institution to control the exchange rates and balance of payments deficits of all countries. But by 1971, the United States was unable to continue to support the dollar backing in gold due to high levels of inflation and fiscal deficits. Nixon, the president at the time, implements an economic plan known as the Nixon shock. This plan ends the gold backing and ushers in the beginning of the fiat money system, whereby the dollar ceases to be a hard currency backed by a scarce commodity and is transformed into debt. In this way the State is able to issue as much debt as it needs to meet its obligations, devaluing the currency and destroying its purchasing power.
However, due to recent geopolitical events, the supremacy of the U.S. dollar as the sole currency of international exchange is losing relevance. The economic and political erosion of the United States has led to the questioning of the dollar as the sole currency of exchange and has opened the door to a multipolar world. Saudi Arabia, an indispensable partner and ally for the hegemony of the petrodollar, has begun to distance itself from Washington and is increasingly closer to Beijing. China has been making major moves on the international scene by facilitating trade agreements between countries, such as the sale of liquefied natural gas between France and the United Arab Emirates. It has also reached trade agreements of its own with Saudi Arabia and Brazil, directly with their own currencies, distancing themselves from the dollar.
Our only hope
Bitcoin is the result of decades of technological and academic advances in fields such as mathematics, cryptography, computing, distributed and decentralized systems. The person or group of people who used the pseudonym Satoshi Nakamoto to publish the bitcoin whitepaper in October 2008, gave humanity a technology as revolutionary as the radio, the printing press or the internal combustion engine. It is the first time in history that we have a monetary system that is not controlled by a nation-state, international organization or interest group. Its code is open, which means that anyone can check that it will work as expected. Its ledger is distributed and decentralized around the world, by individuals who decide to participate in this new system and download all its transactional history. In this way, anyone with a small computer, electricity and an internet connection can be an auditor of this new global monetary system.
Bitcoin was born as a product of the Cypherpunk movement, which began with a group of programmers in the 1980s who began to notice and worry about the advancement of technology and computing as a tool to control and persecute people. From this ideology emerged the free and open source movement, the use of encryption by the civilian population and other technological innovations such as the Torrent system for distributed file sharing and Tor (The Onion Router), a tool to access the Internet anonymously.
There have been many failed attempts to develop a digital currency that does not need a central authority to enforce the rules and punish those who want to abuse the system. It is for this reason that blockchain, the technology that makes it possible for bitcoin to work, is considered a general-purpose technology just like the radio, the printing press or the internal combustion engine. Bitcoin had to solve the problem of double spending, i.e. that it is not possible to spend the same amount twice. The second major problem it solved was to create a system of economic incentives to ensure that all participants behave honestly. The third major problem solved by bitcoin and blockchain technology was to create a single accounting system capable of being maintained and audited globally and simultaneously without a central authority.
Bitcoin was launched to the world in January 2009 as a response to the global economic and financial crisis of 2008. Product of financial speculation and the deregulation of the mortgage market in the United States. Satoshi incorporated in the first block of the chain, known as the genesis block, the following text:
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks
Which refers to the bailout of the fractional reserve banking system. This banking system allows banks to use their clients’ funds to make risky bets in the financial market and when the speculation bubble bursts they are rescued by governments with the money of the same people who were victims of this system.
Bitcoin stands in complete and total opposition to the fractional reserve banking system, modern monetary theory and the fiat money system. Only 21 million bitcoin will exist and these can be transparently audited by anyone. With bitcoin no State, organization or interest group can devalue the currency (btc) and destroy its purchasing power. For that it would be necessary to change the source code and therefore it would cease to be bitcoin.
On September 7, 2021, El Salvador became the first country in the world to adopt bitcoin as legal tender. This means that in addition to the US Dollar (El Salvador does not have its own currency) bitcoin is accepted by law to pay for goods, services and taxes within its borders. The news were received with applause and celebration by the global cryptoasset community but with great distrust and surprise by the mainstream media. Several international organizations, such as the International Monetary Fund, came out to warn about the decision of this small Central American nation. Which is not surprising, given that it is these organizations whose objective is to maintain the supremacy of the petrodollar and oppress the peoples of emerging nations with unpayable debts in order to continue extracting their natural resources.
Historic strategic opportunity
Argentina is one of the few countries in the world that possesses all the natural resources necessary to be self-sufficient, it is one of the few net food exporting countries and the imperialist hegemonic powers know it. It is no coincidence that Argentina has always had a stick in the wheel when it comes to industrialization. From colonial exploitation to the last IMF loan, Argentina has always been held in shackles. A country that cannot develop is easier to plunder. Bitcoin is the tool to destroy these shackles once and for all and set the country on a path of development, industrialization and prosperity.
But how? (I’m sure you ask) with energy. Argentina produces 11% of its energy through three nuclear reactors. It has rich deposits of oil and natural gas. San Juan is a province that receives the highest levels of solar radiation, which presents a great opportunity for solar energy generation. The coastline has a length of 16,352 km for tidal power generation. These are some of the examples of power generation opportunities, indispensable for the development of a country and for bitcoin mining.
What is bitcoin mining? Mining bitcoin is the name given to the computational work of solving a mathematical algorithm to create the next block in the chain. It is this work that is rewarded with new bitcoins that enter into circulation. In Patagonia there are already established foreign companies carrying out this economic activity. They benefit from low temperatures and cheap electricity. YPF announced a recent agreement to supply one of these companies with gas produced as a result of oil refining. A gas that used to be discarded in the atmosphere is now being used to create value. El Salvador, meanwhile, announced that it will use geothermal energy from its volcanoes to mine bitcoin.
We have already established that Argentina has a great capacity for energy generation and there are already foreign companies taking advantage of these competitive advantages. I propose that Argentina adopt bitcoin as legal tender and set up a public-private bitcoin mining program. This will give the country the opportunity to generate its own hard currency (btc) without the need to depend on any country or international organization. The price of bitcoin will continue to increase year by year due to both the adoption of new users and its use, as well as the devaluation of fiat currencies, such as the dollar. With 80% of all US Dollars in circulation having been issued since March 2020, the price of bitcoin will continue to appreciate as there will only be 21 million of it versus an infinite number of fiat currencies. This would establish a more competitive and efficient domestic industry than the current agricultural industry, taking away the burden of being the only foreign exchange generating industry.
In a world that is transitioning from a unipolar world with a single currency, the petrodollar, to a multipolar world with a basket of fiat currencies, dollarizing Argentina’s economy would be to come last to a party that is already over. Adopting bitcoin as legal tender, promoting a public-private mining program and encouraging a new industry would position Argentina as a potential world power. Sovereign, autonomous and self-sufficient.
Translated to English from the original article in Spanish https://medium.com/p/4038a0653b5a
