Argentina's Currency Solution: Go Cashless

Argentinians do not trust their currency. In other words they don’t trust the monetary system that “organizes” their economy.

The next time you visit Argentina bring a lot of cash, either in US dollars or euros. While hotel prices are quoted in dollars, along with other high-priced items such as cars and real estate, you can buy most products and services in cheap “pesos”. The official exchange rate is around 9 ARS to USD (at the time of publication) but you can get around 40% more for your dollar on the black market, also known as the “blue dollar,” if you carry cash.

The way to do it is quite easy. According to an article published a year ago in The Guardian: “Many foreign visitors set up a local contact who can make the change, or ask their hotel to recommend a ‘cueva’ (literally meaning cave; in reality, more like fully functioning businesses, accepting dollars, euros and pounds). Other tourists simply head to central shopping streets and respond to not-so-subtle calls of ‘Cambio! Cambio!’ (exchange); the wise ones having checked the current rate first, so they can barter.” The current “blue dollar” rate can be easily checked on Twitter (@DolarBlue) or in the local newspaper, “La Nación.”

People can’t wait to convert their “pesos” to anything they regard as more secure, such as dollars, euros, gold, or any other non-perishable commodity. This broken currency market has existed for a long time, over a century. That’s why Argentina has fallen from being one of the world’s top ten economies a century ago to ranking No. 80 last year (based on Argentine GDP in pesos converted into dollars).

The perception of corruption has also jumped recently. According to Transparency International, Argentina has a score of 34 (100 is best) in the TI index, lower than countries such as China, Egypt and Mexico. Latin American neighbors Uruguay and Chile have much better scores, both at 73, and rate among the top 20 countries in the world.

Wall Street Journal’s Michael J. Casey, who spent “six and a half happy years in Buenos Aires,” says in his book Age of Cryptocurrency: “their society is in permanent war with itself. [...] Skipping taxes is the norm --why, people reason, would you pay the crooks who will steal your money?”

Yet Argentina has great potential in its internal market. Its people are highly educated and the country’s natural resources are enormous. Its industry is mostly modern and its financial systems are up to date with current technology.

That’s why the best solution to solve the currency situation is to go cashless. It could help the government restore credibility to its financial system and surface the enormous stockpile of money currently circulating in the black market.

Going cashless will also help curb corruption, because electronic cash would make all transactions accountable. People will have to justify the origin of any form of cash to get it converted into digital wallets or bank accounts. That would deter many fraudsters, and corrupt officials would have a harder time accepting bribes.

Going cashless would help government coffers, too: Since a small percentage of the total cash will not surface and therefore will become worthless, the government can electronically “mint” that money to pay off debt or help pay expenses. That’s why the switch to the euro basically paid for itself in eurozone countries.

One way to do it is using a system similar to M-Pesa, the successful cell phone based money transfer system started in Kenya a few years ago and now used in many developing countries. People could store their money in digital wallets linked to their bank accounts. For the “unbanked” they could use reloadable “smartcards” similar to the ones used in public transport systems, limiting their balances to a few hundred pesos.

Eventually, as the “electronic” peso regained stability, currency controls (the so called “cepo”) could be relaxed and finally lifted, giving the currency credibility again.

But the Argentinian government should learn not to tinker with currency policy again, or it could end up in a situation similar to Venezuela, where the bolívar is now worthless and, due to the strict currency restrictions and lack of foreign currency, people can’t afford to buy staples, such as toilet paper.

What is becoming clearer every day is that Argentina’s current system is failing, confidence in public institutions is weak, and trust in the country’s currency is non-existent. If the government lifted currency restrictions altogether, letting people buy dollars at will, there would be a bank run on most accounts. That’s why a digital-only currency is a better solution.

First published as Why Argentina Should Go Cashless, And Fast! on eWonga

Half the world population will have mobile internet by 2020

The GSMA, a mobile industry organization, predicts that mobile Internet will help connect half the world's population by 2020, when the globe is supposed to host 7.7 billion people. For many people, a smartphone will be the only way to connect to the Internet. The number of users in the developed world will rise from 700 million to 800 million, but in developing countries, the number will double from 1.5 billion to 3 billion connected users.

As impressive as that number is, the road to connecting 1.5 billion people is full of obstacles. For many people, an Internet connection simply isn't affordable; it can cost money they need for more basic needs. Sufficient carrier and Internet infrastructure is another major obstacle.

Last year, I attended Mark Zuckerberg's keynote at the Mobile World Congress (MWC) here in Barcelona. At that time, everyone was asking about Facebook's acquisition of WhatsApp and how that was going to impact business and privacy. But Zuckerberg was focused on "connecting everyone in the world" and how Facebook was working to make that goal possible. At this moth's MWC Zuckerberg reiterated the same strategy, showing some promising results in countries in Africa and South America.

Facebook has been doing a few things to get more people connected in developing countries. One program is Facebook on SIM, which involves partnering with selected cellular carriers to embed basic Facebook functionality on SIM cards for basic feature phones. The service works without cellular data, using the SMS service. Users can send and receive messages, update their status, and upload small pictures. The idea is to give potential smartphone buyers a glimpse of the Facebook possibilities on a mobile device.

The second program, also working in selected markets, is free cellular data for Facebook, up to a certain limit. In this way, the social network signs up more users on basic smartphones, hooks them up to apps, and helps cellular carriers get more paying customers when the "free" data allowance runs out. Facebook wants to expand this program everywhere, partnering with cellular providers, giving free data allowances for six months.

This program has been heavily criticized. Chile and other countries have banned it, because it is against their net neutrality laws. A similar program in some countries offers free rides on WhatsApp and Twitter apps.

Providing free data access to some apps could be attractive, but it is no more than a marketing trick to "hook" people online, so they want more and start paying monthly fees. The better solution for many people is try to connect to some free WiFi hotspots, but those are widely available only in developed markets, where most people already have data plans.

During a recent visit to Morocco, I couldn't find any WiFi access points except in the hotel and some expensive cafes and restaurants -- places that most Moroccans can't afford. Also, the infrastructure of the "wired" Internet is extremely poor, and the bandwidth is very limited. If the only way to get online is through a cellular carrier, then someone has to pay for it.

Another big expense for the next billion users is the smartphone. There are several models available for less than $100, but their features are limited. Moreover, $100 can be six months' worth of salary in some developing countries, such as Zimbabwe,.

However, there are some promising news aiming to address this problem. One is the $40 Orange Klif 3G Smartphone running Firefox OS, 4.5-inch screen, a 5-megapixel rear camera, 3G UMTS connectivity, WiFi, and 8GB of memory. It will be available soon in these 13 markets: Egypt, Senegal, Tunisia, Cameroon, Botswana, Madagascar, Mali, The Ivory Coast, Jordan, Kenya, Mauritius, and Vanuatu.

And Google's Android One program includes several phones made by different manufacturers that are already selling in India and soon will be available in Eastern Europe with a price of about $90.

Even with more affordable phones, though, carrier and Internet infrastructure is a big issue for mobile Internet growth. In the US, some parts of Asia, and Western Europe, we are already experiencing service issues due to network capacity, especially in large cities.

What would happen in a place such as Cairo if the number of smartphone users were to triple in five years? Without big investments in connectivity, 3G/4G cells, and data centers, most local carriers would not be prepared to handle the explosion of data usage by so many devices.

At the same time, those new users would not be able to afford the monthly fees paid by subscribers in developed countries, so it will be a challenge for carriers to improve the infrastructure. But connecting half the world could bring new opportunities, improve education and services, and hopefully raise the quality of life of billions of people.

A previous version of this article was first published as Mobile Internet Faces Big Obstacles on 
Network Computing

The eCash Revolution Is Just Getting Going

Almost every day, new payment systems -- new “types” of money -- are being introduced to consumers, businesses, banks, financial institutions, and governments.

As a result of all these new “electronic” forms of money, handling cash has become increasingly expensive. Printing notes costs money; moving them around costs more money; and then keeping them secure, counting them, and finally destroying them even more money.

Trying to keep track of all that cash -- much of which is off the radar -- is also expensive. Cash is the most private and untraceable way to conduct any transaction, and the best way to store “money” without accountability....

Read the rest of the article on our sister site eWonga - The Future of Money