Two months in Argentina: inflation and the failure of the Fiat monetary system
So why not go to Argentina?
Drop everything and go to Argentina
To see what Argentina is like
This is what the Italian singer Francesco Guccini sang in a famous song about this country, so as a good nomad, with Southeast Asia still semi-closed and with strict restrictions, the destinations for this winter were definitely reduced, so I let myself be charmed by the charm of this South American country, which I wanted to visit since a long time but I never had the opportunity.
Argentina reopened to international tourists on November 1, 2021, and with winter coming to Portugal, it was time to close my suitcase and leave for a country heading into Summer. I didn’t know what was waiting for me, I didn’t know what I was going to find but I left with the curiosity of a child, wanting to discover this new land and its people but above all their economy, which is mentioned so much in articles and books but I have never really touched.
The arrival was pretty smooth, apart from all the paperwork I had to fill out because of this new global control, to be honest I have not yet figured out how providing all my personal data can limit the spread of a virus, but it is not an insurmountable obstacle, so in no time I landed in Argentina. The first obstacle was to take a cab from the airport, I had already been warned not to change money at an official exchange counter or banks, but since the only method of payment was cash I changed the minimum amount needed to pay for the cab ride.
Exchange rate is about 1 Dollar = 100 Pesos, remember these numbers because we will be going back often.
The room was already paid for through Airbnb so I managed to survive the first day with that few pesos I had to buy food. Once I got the lay of the land it was time to access some cash and figure out how this exchange works. Luckily a guy who runs several Airbnb’s in the apartment building where I was, told me that he could exchange dollars with him at the “blue dollar” rate and since I had brought dollars from the States I agreed.
But what is this blue dollar?
In Argentina the Dollar/Pesos exchange rate is decided arbitrarily by the central bank, so they can control it as they please. They have also introduced restrictions on capital control and on how many dollars citizens can buy, at the moment the limit is $200 per month. Citizens are therefore limited on the transactions they can perform and so their savings are evaporating day by day due to galloping inflation, but more on that later.
This has resulted in the emergence of a black market, or as they call it “blue” market, where you can exchange your dollars at a significantly better rate than banks, currently about double. The transaction is done without the involvement of authorized or government sanctioned entities (like a bank).
Withdrawing from ATMs, paying with cards or exchanging at official counters is never convenient, all these methods use the exchange rate imposed by the bank, so practically a dinner paid with your card would pay twice as much as paying it with cash purchased at the rate of the blue dollar.
So how to change dollars at the blue rate? The option you’ll read most often on the internet and travel sites is to go to Calle Florida and change it with one of the many people who shout “Cambio! Cambio!” and are ready to sell you all the pesos you need at the blue rate or one or two points lower, there are also many unauthorized exchange offices called “cueva” where you can do the same kind of transactions. An alternative is to have friends or a local contact to interface with, much safer and you can often negotiate the exchange rate, especially if you are paying with $100 bills in good condition.
The last option, which I never would have expected, is to use one of the many Western Unuion counters. Yes, you got it right, what is one of the worst ways to send currency from one part of the world to another, because of the exorbitant costs bordering on fraud, here in Argentina offers the exchange of the blue dollar, and then also a very advantageous exchange in Euro, with a fee ranging from 2 € to 10$. Using it is very easy and does not require you to have cash with you: just send the money by card or bank transfer on their platform and go to a counter to withdraw the Argentine Pesos. But be careful, it’s better to make small transactions orgo early in the morning, as many of these counters run out of their available Pesos in the early hours of the day!
To better understand why there is this huge difference between the two exchange rates and why the local population is willing to give away their Pesos at a rate that is twice as inconvenient for them, we need to touch on a point that we have all heard about but never seen so closely before: inflation.
See first-hand a real inflation
Inflation is a topic that has come back to occupy every debate, especially in the last year when in the United States it reached 6.8% (although many claim it is over 20%) while in previous years it has always been around 2%. This scenario is frightening many people who see their savings depreciating, whether they are in Dollars or Euros due to the increase in the prices of goods.
We often hear about inflation in Argentina, but I don’t think any of us can imagine the data that these graphs represent in real life: 50% annual inflation, which has been going on for years without stopping.
I first got an idea while looking for a place to eat lunch, I was checking restaurant menus, I usually rely on recent photos, like this one from a year ago and these prices, a tortilla at 420 pesos, rabas a la romana at 540 seemed too good a thing to be true.
I certainly would have expected a higher price with given inflation, however after a year how much could that tortilla cost? Maybe 450? Let’s round it up to 500?
No, 990. More than double.
I leave to the reader any further consideration, this is not a unique episode but it was repeated in every single restaurant I went to, until I realized that in Argentina the tab “Menu” on google maps, where users post photos of the menus of various restaurants is almost useless, unless the photo is from yesterday. And when I happened to look at a photo of a menu from 4–5 years ago, I paused and reflected abotu it, it looks like it’s expressed in another currency.
Inflation, so the increase in prices, is one thing you notice daily. Another thing that happened during the first month I was here, I had already noticed how on average uber was slightly more expensive than normal taxis so normally I preferred these, but the base rate of the taxi went from 85 pesos to 110 pesos, all this in less than 3 weeks after my arrival!
Uber, that’s something I’d like to talk about as well since there were other situations I had never had to deal with before. Obviously as you can imagine most people pay for the Uber ride in cash, for the reasons described above. And here comes a problem: in their business model, the company directly withholds its percentage before sending the money to the driver, as seen in other countries. But how does the company Uber in this case to earn if the user pays the full amount of the race to the driver? The latter will receive at the end of the month an invoice from Uber asking him to pay the commission due. Which has been impossible for Uber given the high number of non-paying drivers, so much so that they decided to default on all claims at some point. If you want to know more, here is an article about it.
Yes, Argentina is still a cash-based society, few people have credit or debit cards, or at most they have one per family. And the most valuable banknote is the 1000 Pesos, about $5 if we consider the exchange rate with the blue dollar rate.
You can imagine what it means to change $1000 and how many banknotes you then have to guard, provided you are lucky enough to get paid with 1000 Pesos bills and not 500, or even worse 100!
I also once had to go to the airport to buy a flight, in cash, for two people, I had so much money on me I felt like a smuggler.
A bit of history.
Where does all this inflation come from, how could it get to this point without being able to do anything, indeed seeing the situation only worsen? Just think that in the 90’s one Argentine peso was exchanged for one U.S. dollar to show the extent of this downward phenomenon.
Between the end of the 90’s and the early 2000’s, low economic growth, a recession and a stagnant economy had started an unsustainable situation, among the episodes that gave this economy the coup de grace I would mention as first thing the abandonment of the fixed exchange rate with a voluntary devaluation of the peso.
This led to a total loss of confidence in this currency, which began to devalue and cause many capitals to flee abroad, and the government, in order to preserve from a total collapse, issued a measure called corralito, by which it froze the bank accounts of citizens, allowing withdrawals of small amounts and preventing them from converting their savings into any other currency.
Numerous, but useless, were the protests, in that Plaza de Mayo so well known also for the protests of the mothers of the desaparecidos, but this is another story. The government also converted all bank accounts denominated in dollars into pesos, establishing an arbitrary exchange rate. It was here that the secondary market of blue dollars was born, where the exchange rate is made by supply and demand and not arbitrarily decided, which lasts until today.
And it is this point that provides me with the best hook for the last part of my story, where I analyze the relationship between cryptocurrencies and Argentina and why precisely in a country with a similar history a currency like Bitcoin is very useful, if not necessary to reclaim monetary sovereignty back into the hands of the people.
Cryptocurrencies and Argentina
Not even time to land and I immediately notice a crypto.com advertisement in the airport (which I didn’t have time to take a picture of), but I understand that something is boiling already from the walk I take on the first day when I see this one:
In the air there was a feeling that cryptos are more widespread than what I imagined, the reason is clear, but during the first days I had no contact with anyone who invested in cryptocurrencies, they knew what they were but no one had ever taken the first steps. And maybe that’s why on every billboard, or even wall, every local exchange and not tried to make an impression on the population, using the typical topics that Argentines already know and understand: beat inflation, be able to have savings by eliminating the control of local banks and their exchange limits.
As time went by, I met more people who were investing in cryptocurrencies, but also many miners, who want yes to own crypto, but without having to declare them to the government, or buying them on an exchange with KYC. But these people are a minority, it will take time to reach mass adoption, for now the few Argentines who can afford to have savings, they do it in US dollars, which for them is a strong currency, that keeps its value, for us it is another inflated shitcoin.
And speaking of mass adoption, a situation that surprised me happened at the end of the guided tour of Palacio Barolo, our guide said somewhat in jest that if we wanted to give her a tip she accepts cryptocurrencies, and I want to check if it was a joke she was serious, so I said it was fine with me to tip that way. She was totally amazed, since until now I was the first one to who proposed to tip her with bitcoin, and overjoyed she pulled out the Binance app. Not a wallet, but an exchange app. There will be work to be done as far as education and teaching the difference between a wallet where you own the private keys and an exchange but at least these are doing a great job in bringing cryptocurrencies adoption to ordinary citizens in an easy way.
Conclusion
The time has come to leave this magnificent country, after two really intense months, when I arrived I never expected that the thing I would be most interested in learning about would be their economy, but this article is proof that surprises are just around the corner.
I am confident that Argentina and its people, as with other countries in this part of the world are ready to raise their heads and will use bitcoin and cryptocurrencies to escape from this situation, regain control of their money and not be slaves to a system that decides for them, always for the worse. Citizens have suffered for many, too many years now, and many are tired of working for monopoly money.
It will take time, but the road is marked.
E tutto è invece la dimostrazione di quel poco che a vivere ci è dato
E l’Argentina è solo l’espressione di un’equazione senza risultato
Come i posti in cui non si vivrà, come la gente che non incontreremo
Tutta la gente che non ci amerà, quello che non facciamo e non faremo.(F. Guccini)
And everything is instead the demonstration of the little that is given to us to live
And Argentina is only the expression of an equation without result
Like the places we won’t live in, like the people we won’t meet
All the people who won’t love us, what we don’t do and won’t do.(F. Guccini)
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