Does Argentina Need More Bitcoins or Larger Banknotes?

source: Bitcoin News

2016. Jul. 21. 12:00

Does Argentina Need More Bitcoins or Larger Banknotes?

Inflation and corruption are two major problems afflicting Argentina and other Latin American countries, such as Brazil and Venezuela. If leaders of these countries wish to solve these problems, they should be advised to think outside the box, shift paradigms, and boldly explore the benefits that new technologies, such as Bitcoin and its blockchain, offer.

Also read: Bitcoin a Reliable Alternative in Latin America

Bitcoin & Smart Contracts Can Help Argentina

The present economic situation torments Argentinians in multiple ways. For example, due to the unrelenting inflation, authorities were finding it increasingly difficult to handle the large volume of banknotes, to the extreme that many ATMs were malfunctioning due to wear and tear, as they had to be constantly replenished, because of intensive use.

As a result, the Argentine Central Bank has been forced to introduce a new denomination bill. In effect, the Central Bank introduced a new 500 pesos bill, which started to circulate on June 30, 2016. The 500 note is now the highest current denomination (about $33). The 100 pesos bill is the second highest denomination (about $6).

Simply, Bitcoin is not physical but digital. Therefore, using bitcoins instead of banknotes would eliminate problems related to restocking ATMS. Also, there would be almost no costs associated with printing, distributing, and storing banknotes.

But, most importantly, Bitcoin could be an effective tool to fight inflation, in the sense that the production of bitcoins is limited to no more than 21 million bitcoins. This amount will be reached by the year 2040 when the last bitcoin will be created.

Blockchain technology allows for the implementation of smart contracts. Smart contracts are computerized sets of rules, programmed to execute, verify, and enforce the stipulations of a business agreement. Smart contracts do not require human intervention, thus reducing or eliminating opportunities for human error and fraud.

ATM Users Are Victims of Inflation

The introduction of Argentina’s new denomination banknote occurs under the stigma of soaring inflation and declining investments. Specifically, as reported by Bloomberg, the annual inflation rate in Argentina surpasses 40%.

When Mauricio Macri was sworn as president of Argentina on December 10, 2015, the country was already confronting colossal economic challenges. Indeed, the consumer price index had been steadily increasing for quite a while, and it is likely to continue doing so, as shown in the table below.

As inflation increases, the value of the banknotes decreases. In addition to the economic problems that inflation entails, there are other equally frustrating problems of a more practical nature.

For example, it is often difficult to find a working ATM in Buenos Aires. ATMs run out of money almost as soon as they have been replenished. During holidays, this situation is greatly aggravated, as it is hard to find an ATM with money available. Moreover, ATMs allow you to withdraw a limited amount of pesos, roughly between $100 and $200. You can withdraw small quantities from different ATMs, but, of course, you will be charged fees for each transaction.

Argentina’s Largest Currency Denomination Banknote

The newly introduced 500-peso banknote is greenish. The paper is made from 100% cotton. For security purposes, the banknote features a Jaguar and the number 500 as watermarks, ultraviolet fluorescent fibers, and a security thread that changes color from green to blue.

According to the Central Bank of Argentina, the new bill will make it easier to stock bills in the ATMs. Authorities also hope the new banknote will help to reduce costs and delays associated with its distribution and transportation. Thus, the new banknote is expected to make many daily ATM operations faster.

So, will the printing of the new banknote help solve any of Argentina’s economic problems?

At least in the immediate future, the larger denomination banknote will ameliorate the situation with the ATMs. But because of galloping inflation, other intended benefits will eventually disappear into thin air. And, ATMs will soon be empty again.

A Safe Haven During Crisis

Certainly, just printing more fiat money does not cause inflation. As Professor John T. Harvey explains, “The money growth accompanies inflation, but it does not cause it.”

And, the classical theory of inflation “considers money growth, which is the increase in the money stock supplied by the government, to be the main cause of inflation, but money growth is a necessary, but not sufficient, condition for inflation.”

Moreover, the value of fiat money can dramatically plunge under crisis situations. This shortcoming does not apply only to the Argentine peso. Recently, the Turkey’s lira dropped sharply due to the attempted military coup d’état. And, the UK pound sterling plunged dramatically in the Brexit referendum aftermath.

In contrast, optimism about Bitcoin continues to surge. And it has demonstrated itself to be stable and safe during severe crises, such as the one arising from the Brexit referendum. The political crisis in Turkey has driven people to the safe haven, Bitcoin, to protect their wealth.

Additionally, Bitcoin is inherently anti-inflationary. Thus, spooked by inflation, Chinese investors are flocking to Bitcoin. These events should make Argentine economic authorities further appreciate the virtues of Bitcoin and encourage them to design more creative ways to fight the country’s major economic evils.

Do you think Bitcoin and blockchain solutions could help the Argentine economy? Let us know in the comments below.

Images courtesy of Pixabay, Central Bank of Argentina, tradingeconomics.com

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