Argentina has been dealing with hyperinflation for several decades, which can be attributed to failed policies and budget deficits. This has raised concerns about the possibility of a full-scale currency collapse in the country, home to 47 million people. In light of this situation, many are considering the potential for increased adoption of Bitcoin (BTC) as a solution.
Throughout its history, the Argentine government has frequently resorted to inflating the money supply through bank deposits or government bonds. This has resulted in a significant increase in Argentina’s aggregate money supply M1, which includes currency, demand deposits, and other checkable deposits. From July 2019 to the present, the money supply has risen from 2.81 trillion pesos to an astonishing 10.66 trillion pesos, marking a 277% increase over a span of three years.
When examining Bitcoin’s price in Argentine pesos, it is evident that there has been a substantial increase. The price on domestic exchanges has soared to 19.6 million Argentine pesos, up from 14.2 million when BTC reached its all-time high in US dollars in November 2021. This means that despite a 61.5% drop from $69,000, investors in Argentina have still managed to accrue gains of 38% when measured in the local currency.
However, it is important to note that there can be discrepancies when consulting Google or CoinMarketCap for Bitcoin’s price in pesos. The answer to this difference lies in the official currency rate for the Argentine peso, which is more complex than most investors are accustomed to.
Argentina has an official rate, known as the “dollar BNA,” which is set by the country’s central bank and used for all government transactions, as well as for imports and exports. When comparing the Bitcoin price in Argentine pesos traded on cryptocurrency exchanges with Google’s theoretical price, there is nearly a double-digit difference.
This theoretical price is calculated by multiplying the BTC price on North American exchanges in US dollars by the official Argentine peso rate provided by the local government. It is essential to recognize that this phenomenon is not exclusive to cryptocurrencies but also affects other highly liquid international assets like stocks, gold, and oil futures.
The government’s aim in artificially strengthening the official exchange rate in favor of the Argentine peso is to stabilize the economy, reduce capital flight, and discourage speculative trading by making it more expensive to purchase foreign currency and store wealth in US dollars. While this measure may increase the cost of imports, it is expected to boost exports and improve the trade balance.
However, manipulating the official foreign exchange rate ultimately contributes to inflation and hinders economic growth. It creates incentives for the existence of an unofficial and unregistered market known as the “dollar blue,” which fosters illegal activities, undermines financial transparency, and discourages foreign investment. As a result, there are varying exchange rates depending on the market in which the transaction occurs and whether or not it involves the government and official banks.
Considering the potential of Bitcoin as a reliable store of value for investors in Argentina, it is crucial to analyze its performance. According to Bitso exchange prices in Argentine pesos, Bitcoin has gained 150% over the past two years, moving from 7.84 million pesos to 16.6 million pesos. However, the accumulated official inflation rate during this period has exceeded 300%. Therefore, it would be incorrect to claim that Bitcoin has been a dependable store of value.
On the other hand, those who chose to hold US dollars, whether in traditional form or stablecoins, have seen their holdings increase by 297% during the same period, effectively matching the inflation rate. This comparison focuses solely on the two-year period between September 2021 and September 2023.
Considering these results, it is somewhat disappointing for Bitcoin proponents in Argentina. It is likely that the adoption of stablecoins in the region will be favored instead. However, it is important to note that the situation has provided investors with the opportunity to learn about the advantages of self-custody and scarcity. The continuously inflating supply of the local currency has decimated its value, creating a need for alternative stores of value.
In conclusion, as long as the US dollar maintains its purchasing power and keeps pace with local inflation, there is little room for Bitcoin to become the preferred store of value for Argentinians. It remains crucial for individuals to seek legal and investment advice before making any decisions in this complex economic landscape. The views and opinions expressed in this article are the author’s alone and do not necessarily reflect or represent those of Cointelegraph.