On May 4, the Central Bank of Argentina banned payment providers from allowing cryptocurrency transactions. This move, according to the monetary authority, is intended to curb the exposure of the Argentine payment system to digital assets.
Hyperinflation in Argentina is driving cryptocurrency adoption, with local exchanges seeing a high flow of Bitcoin transactions. However, the government’s response to the trends is to ban crypto adoption. The central bank’s May 4 decision has wide-ranging ramifications.
Argentina has a long history of economic instability and high inflation, experiencing hyperinflationary episodes. One of the reasons that hyperinflation may drive cryptocurrency adoption is that cryptocurrencies may offer a way for people to protect their savings and wealth from the devaluation of the national currency.
In the case of Argentina, the government has implemented various measures to control inflation, such as currency controls and price freezes. However, these measures have often failed to stabilize the economy, leading many people to seek alternative ways to store their wealth. The government does not smile upon innovation, though.
Cryptocurrency Adoption in Argentina
Cryptocurrencies such as Bitcoin and Ethereum have become increasingly popular in Argentina as a way for people to protect their savings and investments from inflation.
Last month, the price of Bitcoin hit an all-time high in the Argentine peso (ARS), with the BTC exchange rate topping 6.59 million ARS, according to aggregate price data tracked by Google Finance.
Stats are up more than 100% year-to-date. On the other hand, in March, inflation in the country shot up 104.30% on an annualized basis, after a jump of 102.50% in the previous month. To make things worse, Argentine central bank reserves have been halved to an estimated $1.3 billion since 2019.
These cases have allowed locals to reduce their dependence on the national currency. Instead, look into other decentralized safe havens like Bitcoin.
Seeking Safe Haven
Multiple reports have emerged from some cities in Argentina exploring the use of cryptocurrencies to address the economic challenges they face. In 2021, for instance, the mayor of the city of Vicente López announced plans to launch a local cryptocurrency to encourage local commerce and promote economic development.
The idea behind the initiative is to offer a local currency that can be used within the city to encourage residents to shop at local businesses instead of purchasing goods and services from other places.
Other cities in Argentina, such as San Lorenzo and Bahía Blanca, have reportedly explored the use of cryptocurrencies to address economic challenges, such as high inflation and lack of access to traditional banking. In some cases, local governments pay employees in cryptocurrency as a way to provide an alternative means of payment subject to a different level of control and inflationary pressures than the national currency.
There are challenges and risks associated with these types of initiatives, such as legal and regulatory barriers to overcome, along with concerns about the security and stability of digital money.
To conclude, while many central banks have implemented monetary measures, such as lowering interest rates and providing liquidity to banks to support economic activity and avoid a credit crunch, governments have also implemented fiscal stimulus measures, such as providing financial support. to businesses and households, to help soften the impact of the pandemic on the economy.
By Audy Castaneda
