This is an opinion editorial by Samantha Messing, a Brown graduate who is making the world a better place with Bitcoin.
Investment legend and limousine liberal Warren Buffett has never been a fan of Bitcoin. He recently commented:
Of course, Buffett doesn’t get it. He’s a billionaire from Nebraska. The US dollar is the strongest currency in the world. He cannot fathom the possibility that the State could hyperinflate the currency, default on the debt or confiscate assets.
For Argentine people, financial collapses are their groundhog day. Fortunately, Bitcoin offers a reliable alternative to their failed national currency and corrupt monetary system. let’s get into it
Argentina faces one of the highest inflation rates in the world…again! The nation has no access to international capital and owes more than $40 billion to the IMF. Prices are skyrocketing and almost half the population lives in poverty. Economic conditions are as bad as ever…and that’s saying something for Argentina.
Successive governments, starting with the Peronists in the 1940s, have burdened the nation with heavy debts. Argentina has gone bankrupt nine times, with more than a dozen cycles of hyperinflation and reforms over the past century. No country has a worse record.
The playbook looks like this:
- Print money to provide social services and maintain power.
- Act shocked when inflation soars.
- Act even more surprised when political unrest occurs.
- Monetary “reform” institute (Ha!).
Argentine inflation is a special type of inflation. It comes with a lot of zeros. We are talking about millions. What good is a $1 million salary when bread costs $2 million? Faced with political pressure, politicians adopt a monetary “reform” that includes a combination of raising policy rates, controlling exchange rates, or introducing a new currency.
Pretend it’s 1970 and you have a million pesos in the bank. You feel good, don’t you? Here comes monetary “reform”.
- The peso ley replaces the previous peso at a rate of 1:100. Now you have 10,000 pesos.
- Then, in 1983, the Argentine peso replaces the peso ley at 1:10K. You are now 1 weight.
- Just two years later, 1:1K — 0.001 pesos.
- Ten years later, 1:10K — 0.0000001 pesos.
Economist Marcos Buscaglia recently described the peso as ice cream:
On paper, Argentina’s political system is similar to that of the United States: three branches and popularly elected presidents with four-year terms. In practice, checks and balances have been in decline for decades. Known as “hyper-presidentialism,” Argentine presidents have too much power, and Argentina has been poorly governed by both liberals and conservatives.
The seeds of Argentina’s current economic crisis were sown during the last decade. It begins with former President Cristina Kirschner (now Vice President) pursuing a populist-socialist agenda for her working-class base. He spent massively on subsidies and social programs, all financed by foreign loans. The public debt soared, and then inflation and interest rates soared.
Later, 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 do it really he stopped spending and reigned in the deficit. But, as we know, austerity dims re-election prospects. Thus, in 2018, Marci secured a $57 billion credit line from the IMF, the largest in the history of the IMF. Phew.
The billions came with a caveat: Macri must implement anti-inflation policies. Marci looked for shortcuts. It sold tons of short-term, high-interest notes, called Leliq notes, to pump up liquidity. But it wasn’t enough. Poverty increased and citizens became restless. Macri’s popularity rating plummeted… just as the 2019 presidential election looms. His populist rivals, Alberto Fernández 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 battered economies around the world. Few countries were less prepared than Argentina. Shortly after the shutdown, the nation defaulted on its sovereign debt and inflation reached 70 percent.
This is not the first rodeo of currency collapse for Argentinians. Citizens began to accumulate durable goods such as housing, gold, technological devices, and non-perishable food. They all have one goal: get off the weight… now!
On payday, Argentines rush to the illegal “cuevas” (black market exchanges) to exchange pesos for other currencies. These exchanges mainly distribute cash, and this is a dangerous business. Criminals know the game and robberies are common. Still, the black market offers a safer bet than the national currency and banking system. Really?
Yes! In 2001, the Argentine government enacted “el corralito,” denying people access to their bank accounts for nearly a year. When the banks reopened, citizens discovered that all US dollars were exchanged for pesos i the peso lost 60 percent of its value. Could this happen again? You bet your ass it could.
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. Casares grew up in the Patagonia region and saw his family lose their life savings—three times—due to the collapse of the currency. Casares also founded Xapo, the first institutional Bitcoin custodian, which he sold to Coinbase in 2019.
Argentinians are increasingly using bitcoin as an alternative to their national currency shitcoin. As a decentralized peer-to-peer network, bitcoin allows Argentines to freely send and receive value to each other and across borders. Importantly, bitcoin is both resistant to degradation and convulsions. Bitcoin can be stored securely on a USB stick or in your head (if you remember your seed phrase). Either way, it’s a lot easier and safer than hauling cash from a cave to an attic.
Government officials, journalists and limousine liberals like Warren Buffett and Elizabeth Warren deride bitcoin as dangerous and risky. They trade in Western luxury beliefs without considering the needs of billions of people living in countries with unstable financial systems.
To be clear: Bitcoin is not perfect. But even though the price of Bitcoin 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 during that same period…”
Bitcoin adoption in Argentina is surpassing Europe and the United States (oh!). 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 an independent survey by Morning Consult.” The nation is one of the top countries to receive crypto paychecks, and the caves now offer exchange rates between the peso and Bitcoin.
Of course, Bitcoin will not cure Argentina’s economic problems and political failure. But, it is a super valuable asset for the people… because it is the only money that Argentine politicians cannot destroy.
Long live the bitcoin revolution!
These opinions are my own and are not financial advice.
This is a guest post by Samantha Messing. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
