On paper, Argentina’s political system is similar to that of the United States: three branches and elected presidents with four-year terms. In practice, checks and balances have been in decline for several decades. Known as “hyper-presidentialism”, Argentine presidents wield far too much power, and Argentina has been poorly governed by both liberals and conservatives.
The seeds of Argentina’s current economic crisis were sown over the past decade. It begins with former President Cristina Kirschner (now Vice President) pursuing a populist-socialist agenda for her working class base. She spent massively on subsidies and social programs, all financed by foreign loans. Public debt skyrocketed, and then inflation and interest rates skyrocketed.
Then center-right President Mauricio Macri took office with promises to revive the economy. However, the peso continued to fall against the US dollar. With capital controls imposed on the population, Argentines hoarded black market US dollars under mattresses.
At this point the government should have really stopped spending and ruled in deficit. But, as we know, austerity dampens one’s re-election prospects. Then in 2018, Marci secured a $57 billion line of credit from the IMF, the largest in IMF history. Phew.
The billions came with a caveat: Macri must implement anti-inflationary policies. Marci looked for shortcuts. He sold tons of high-interest short-term bills, called Leliq notes, to sponsor the liquidity. But it wasn’t enough. Poverty increased and the inhabitants became restless. Macri’s popularity rating plummeted … just as the 2019 presidential election looms. His populist rivals, Alberto Fernandez and former president Cristina Kirchner, were swept into office.
We know what happened next. The pandemic, Russia’s war in Ukraine, shrinking food supplies and tighter energy markets hit economies around the world. Few countries were less prepared than Argentina. Immediately after the shutdown, the nation defaulted on its national debt and inflation reached 70 percent.
This is not the first currency collapse rodeo for the Argentines. Citizens began to accumulate durable goods such as homes, gold, technological devices, and non-perishable food. They all have one goal: Get out of the peso… now!
On payday, Argentines rush to illegal “cuevas” (black market exchanges) to trade pesos for other currencies. These exchanges primarily distribute cash, and this is a dangerous enterprise. Criminals know the game, and abuse is common. Nevertheless, the black market offers a safer bet than the national currency and banking system. Really?
Yes! In 2001, the Argentine government enacted “el corralito,” which denied people access to their bank accounts for nearly a year. When the banks reopened, residents discovered that all US dollars had been exchanged for pesos and the peso lost 60 percent of its value. Could this happen again? You bet your ass it can.
No wonder Argentina bred Silicon Valley’s Bitcoin “patient zero,” Wences Casares, who helped convert Elon Musk, Peter Thiel, Reed Hoffman, and Chamath Palihapitiya to the cause. Growing up in the Patagonia region, Casares saw his family lose their savings – three times – due to currency collapse. Casares also founded Xapo, the first Bitcoin institutional custodian, which he sold to Coinbase in 2019.
Argentines are increasingly using bitcoin as an alternative to their national shitcoin currency. As a peer-to-peer decentralized network, bitcoin allows Argentines to freely send and receive value to each other and across borders. Importantly, bitcoin is both debasement-resistant and seizure-resistant. Bitcoin can be stored safely on a USB stick or in your head (if you can remember your seed phrase). In any case, it is much easier and safer than transporting money from a cueva to an attic.
Public officials, journalists and limousine liberals like Warren Buffett and Elizabeth Warren cluelessly deride bitcoin as dangerous and risky. They engage in Western luxury beliefs without regard for the needs of billions of people living in countries with unstable financial systems.
To be clear – Bitcoin is not perfect. But even though Bitcoin’s price has fallen (hard) in recent months, Bitcoin remains a superior alternative to the Argentine peso. In fact, according to this New York Times article, “nearly 60 percent of Argentines believed that Bitcoin, one of the most popular cryptocurrencies, would retain the value of their savings over the same period…”
Bitcoin adoption in Argentina surpasses Europe and the US (duh!). The same New York Times article states: “About a third of Argentines said they bought or sold cryptocurrencies at least once a month, double the percentage of people in the United States, according to a separate survey by Morning Consult.” The nation is a top country for receiving paychecks in crypto, and cuevas now offer exchange rates between the peso and Bitcoin.
Of course, Bitcoin will not cure Argentina’s economic problems and political failure. But it’s a super valuable resource for the people… because it’s the only money that Argentine politicians can’t destroy.
Viva la bitcoin revolution!
These views are my own and are not financial advice.
This is a guest post by Samantha Messing. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc Bitcoin Magazine.
