And so the decades-long decline of the Argentine peso continues, down now 16 percent against the dollar this year. In the past five years alone it has lost 77 percent of its value against the US dollar and almost the same amount to the euro and pound sterling.
Despite raising its interest rate by 300 basis points twice in the past week to an unfathomable 33.25 percent – the highest in the world – the currency declined a further 7.7 percent against the US dollar so far this week. President Maurico Macri, who rose to power on a boisterous claim to revive the economy, is struggling to contain inflation within this years’ dismal target of 15 percent.
“Investors gave Macri about a year and a half grace period to put the house in order. After that they started to worry,” Claudio Loser, a former executive at IMF, told Bloomberg. “Now that the fiscal adjustment remains weak, inflation unwavering, and US bonds more attractive, investors are evidently losing their patience.”
Unfortunately for Argentinians the debasement of their currency has been happening for generations. Since winning independence in 1816, Argentina has gone through eight different forms of currency and is currently in the ninth iteration of the peso.
In circulation since 1992, the “peso convertible” was originally issued at rate of 1:1 to the dollar by Argentina’s central bank, so for every peso in circulation there was a US dollar in the bank’s reserves. Today the peso is at a record-low of 23 peso to 1 dollar and the central bank has resorted to selling reserve dollars by the billions to buoy the peso.
This year the central bank has burnt through $6.9 billion in an effort to stop the peso’s slide – that’s about 10 percent of the country’s international reserves.
The potential of bitcoin in Argentina
Wences Casares, Silicon Valley tech entrepreneur and founder of the bitcoin wallet Xapo, was inspired by the potential of the cryptocurrency after seeing his family in Argentina lose everything they had – three times.
“Every time it was something that the government and the banks did. The first time was due to hyperinflation, in 1989, when prices were changing several times a day”, Casares said.
“I remember one morning my mum came to take me and my sisters out of school and she was carrying two plastic bags full of money. That was her week’s salary – she was a receptionist at a government bureau on a modest wage. She took us to the supermarket and gave us a list for an aisle and explained that we had to spend all the money because it wouldn’t be worth as much the next day.”
“At the time there were no barcodes or computers for prices, there were staff whose job it was to change the prices on the shelves manually and when they finished doing all the aisles they would literally start it over again – you could see the prices change in front of your eyes. So it was our job to get in front of this person before the prices went up,” Casares recalls.
Although the volume is still diminutive, the activity in local bitcoin buying in Argentina has been spiking in recent weeks and has been in an uptrend after the mass crypto sell-off in January. Google trend searches for bitcoin also spiked this week, on Wednesday around the time of the last central bank 3 percent rate hike.
As successive governments have failed to build a solid monetary base and the latest one on the brink the Argentinians have every reason to go crypto. But as we saw in 2011 when the government banned their citizens from buying US dollars on Paypal, there may be more tears shed for Argentina.