Written By Elizabeth Cohn
In light of Argentina’s political and economic instability, many Argentine citizens have turned to using stablecoins as an alternative to the Argentine Peso. According to Investopedia, Stablecoins are “cryptocurrencies whose value is pegged to that of another currency, commodity or financial instrument” (Hayes, 2024). Unlike Bitcoin or other cryptocurrencies, stablecoins are backed with reserves of fiat money or their equivalent, giving them a stable value (Montagner, 2023). However, like Bitcoin and other cryptocurrencies, stablecoins are transacted via blockchain protocols and are essentially borderless (Montagner, 2023). Since stablecoins are relatively easy to transact and are pegged to the value of another currency, they are seen by an increasing number of Argentinians as providing a more stable and reliable alternative to the Argentine Peso.
Since the 1970s, Argentina has been plagued with hyperinflation. In 1975, Argentina experienced its first case of hyperinflation caused by a series of price controls to manage a shortage of products (Buera & Nicolini, 2022). The rapid increase in prices as well as the fiscal deficit drove inflation to extremely high levels (Buera & Nicolini, 2022). Argentina experienced its second major case of hyperinflation in the 1990s with inflation “reaching annual rates of 2600% in 1989 and 1990” (Pou, 2000). Although the central bank tried to bring inflation down, it was largely unsuccessful and the banking system nearly collapsed (Pou, 2000). This caused Argentina to implement the Convertibility Plan which pegged the Argentine Peso to the US dollar at a fixed exchange rate of 1 to 1 (Pou, 2000). Although the Convertibility Plan seemed promising in theory, maintaining the fixed exchange rate was unsustainable, and the Argentine economic and financial crisis of 2001 ultimately caused the Convertibility Plan to fail (Lagos, et al., 2004). Since the financial crisis in 2001, Argentina has continued to grapple with mounting inflation.
With inflation topping 140% just before the 2023 presidential election, Argentine citizens were even more eager to turn to more radical measures with the hope of eradicating hyperinflation once and for all (Roy, 2024). These worsening economic conditions allowed Javier Milei to entice Argentines with his radical platform that pivots away from traditional politics. Milei, a self-proclaimed “anarcho-capitalist,” has centered his proposed policies around the abolition of the central bank as well as complete dollarization in order to combat hyperinflation. So far, however, much of his promised success has not taken root. In December 2023, the Milei administration worked to devalue the Argentine Peso by 50% to try and match the black-market exchange rate to the real exchange rate (The Economist, 2024). However, this only caused inflation to spike even more and caused the poverty rate in Argentina to skyrocket to approximately 50% (The Economist, 2024). These open promises of economic recovery have left many Argentines with no choice but to turn to an alternative form of currency, most notably stablecoins.
According to a survey done by blockchain analytics firm Chainanalysis, Argentina leads all of South America in its usage of stablecoins (Montagner, 2023). Since stablecoins are pegged to the value of a fiat currency, they enable transactions without having to worry about the fluctuating value of the Argentine Peso (Montager, 2023). This is appealing to Argentines because of the constant fluctuating value of the peso. Additionally, stablecoin transactions are faster and more efficient than fiat money, especially foreign currencies (Montager, 2023). This is especially beneficial in Argentina because the value of the peso fluctuates so frequently that the transaction costs could change in a matter of hours. Indeed, despite Milei’s radical push to eliminate the central bank and the Peso, he is a supporter of cryptocurrency and wants to use it to bring “money back into the private sector” (Montager, 2023).
Another significant benefit of stablecoins for Argentina is their ability to protect savings (Montager, 2023). One example of this can be seen with the usage of DAI coins. DAI, which is a stablecoin that is “pegged 1 to 1” directly to the US dollar, has seen its popularity soar as Argentines have turned to using it as a form of dollarization (Engler, 2021). Argentines have been purchasing DAI coins using pesos and then instantly exchanging them for US dollars in order to save their money. DAI’s value is stable because its collateral is regularly published on the Ethereum blockchain (Engler, 2021).
Beyond Argentine citizens simply using stablecoins as a method to maintain personal savings, stablecoins are also “revolutionizing the remittance sector” (Cooling, 2024). Due to the constant financial and political instability that grips Argentina, many citizens have looked for employment abroad making remittances a vital source of income for many Argentine families. In 2021, remittances increased by 25% and again by 11% in 2022 (Cooling, 2024). As of 2023, remittances were valued at about USD $156 billion (Cooling, 2024). One major challenge of remittances is their steep processing fees, charges, and processing times (Cooling, 2024). Stablecoins mitigate this challenge by offering a more efficient method of sending money to family members at home, with low transaction fees and processing times in minutes.
While the fate of Javier Milei’s plans to abolish the central bank and force Argentina into complete dollarization remains uncertain, stablecoins could provide the financial stability that Argentina so desperately needs. Indeed, in areas like savings and remittances, DAI and other US dollar-pegged stablecoins are already dollarizing portions of the Argentine economy.
References
“After 100 Brutal Days, Javier Milei Has Markets Believing.” The Economist, The Economist Newspaper, 2024, www.economist.com/the-americas/2024/03/19/after-100-brutal-days-javier-milei-has-mar kets-believing.
Buera, Francisco J, and Juan Pablo Nicolini . A Monetary and Fiscal History of Latin America, 1960–2017, 2020, manifold.bfi.uchicago.edu/read/case-of-argentina/section/9905ef24-8c94-42ad-adf7-068e fb4d9afb#:~:text=These%20years%20were%20characterized%20by,months%20of%2019 75%20and%201976.
Cooling, Sam. “Argentina’s Economic Turmoil Triggers Surge in Stablecoin Adoption.” Techopedia, 26 Feb. 2024, www.techopedia.com/argentina-economic-crisis-fuels-surge-in-stablecoin-adoption.
Engler, Andrés. “Why Argentines Are Turning from Dollars to Stablecoins like Dai.” CoinDesk Latest Headlines RSS, CoinDesk, 14 Sept. 2021, www.coindesk.com/markets/2020/12/22/why-argentines-are-turning-from-dollars-to-stab lecoins-like-dai/.
Lago, Mrs. I. M. y, Takagi, S., Martin, Mr. R., Takebe, Ms. M., & Cohen, Mr. B. H. The IMF and Argentina, 1991-2001, 30 Sept. 2004 https://doi.org/10.5089/9781589063808.017
Montagner, Davide. “Stablecoins Gain Momentum in Argentina as Peso Plummets.” The Banker, 31 Oct. 2023, www.thebanker.com/Stablecoins-gain-momentum-in-Argentina-as-peso-plummets-16987 42139.
Pou, Pedro. “Finance and Development.” Finance and Development | F&D, Mar. 2000,www.imf.org/external/pubs/ft/fandd/2000/03/pou.htm#:~:text=Inflation%2C%20which%20had%20risen%20gradually,the%20banking%20system%20practically%20disappeared.
Roy, Diana. “Argentina’s Struggle for Stability.” Council on Foreign Relations, Council on Foreign Relations, 2024, www.cfr.org/backgrounder/argentinas-struggle-stability#chapter-title-0-5.