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.