Argentinian citizens want to use Bitcoin to fight against the US dollar.

The Central Bank of Argentina officially banned consumers from using credit cards to purchase Bitcoin and other cryptocurrencies on 11/1. However, the results that followed were contrary to the expectations of the Argentine government. According to data from CoinDance, peer-to-peer Bitcoin trading in the country has reached a new high in the past two weeks.

Economic Fragility

One of the major reasons why citizens of the country are increasingly adopting cryptocurrencies is the high volatility of the Argentine national currency, the peso. Over the past five years, the peso has depreciated by over 85% against the US dollar. Due to the lack of confidence in their own currency, residents of the country tend to convert their pesos into the relatively stable US dollar.

This has led to the country defining the value of goods and services in terms of the US dollar. Media reports on the peso-to-dollar exchange rate are almost as frequent as weather and traffic reports. Consequently, when the dollar fluctuates, it has a significant impact on the peso and can even destabilize the country's economy.

Given the economic situation in Argentina, prominent Bitcoin supporter and tech billionaire Tim Draper suggested in March this year that the Argentine president legalize Bitcoin to improve the country's economic condition. He believes that cryptocurrencies could help mitigate the devaluation of the Argentine peso and reduce talent drain.

CEO of Anchor stablecoin, Daniel Popa, also noted that while cryptocurrencies are highly volatile, Argentinians see them as a more valuable store of value compared to the peso, as Bitcoin is not subject to government manipulation. However, he added:

Unfortunately, Bitcoin cannot provide predictability or meet the ongoing demand for globally recognized stablecoins and financial standards, which are essential for adoption by anyone in the world, including those impacted by negative economic events such as wars, natural disasters, health crises, and destructive monetary policies.

Foreign Exchange Struggles

In the 1990s, the government under President Carlos Menem pegged the peso to the US dollar in an attempt to curb inflation, which damaged exports, forced the country to take on more debt, and sustain itself in a deteriorating economic crisis. Although this exchange rate mechanism was lifted in 2002, the culture of Argentina was deeply ingrained.

On September 1st, the Central Bank of Argentina imposed restrictions on the purchase of US dollars to prevent a sharp decline in the peso. Citizens are limited to purchasing $10,000 worth of goods per month with dollars, and special permission is required for amounts exceeding this limit. The central bank also stated that it would limit the monthly purchase of dollars through bank accounts to $200 and cash purchases to $100, with this policy in effect until December.

Salomon Ptit Haddad, Head of Institutional Sales at Enigma Securities, commented on the government's crackdown on foreign exchange:

The Central Bank of Argentina can easily impose restrictions on the use of bank cards, as local banks must comply with the guidelines set by the country's central bank. However, Argentina also owes nearly $50 billion to the International Monetary Fund to address its economic problems.

Regarding the Central Bank of Argentina's ban on citizens using credit cards to purchase cryptocurrencies, Haddad believes that the regulatory policy aims to protect the national currency at the expense of cryptocurrencies, as Argentinians tend to exchange cryptocurrencies back to dollars, either abroad or domestically.

In March this year, Deputy Minister of Finance Felix Martin Soto claimed that the government should adopt blockchain and cryptocurrency technology to improve financial inclusion in Argentina and reduce national costs. He asserted:

Promoting the cryptocurrency industry in our country will help reduce our dependency on the dollar, ultimately contributing to maintaining the local market and attracting global investments.

Coincidentally, President Mauricio Macri, elected in 2015, initially had a positive view on Bitcoin, even sponsoring the first Bitcoin forum in Buenos Aires. However, his enthusiasm for cryptocurrencies seems to have waned. Jon gave two reasons for the president's diminished interest in cryptocurrencies:

Firstly, it is challenging to focus on Bitcoin regulation when trying to maintain government stability and reduce domestic currency inflation to make people afford to live: secondly, I think it may have become entangled in bureaucratic suppression for various reasons.

We have seen this scenario time and again in countries like India and China, where cryptocurrency trading volumes surge after bans. Capital controls seem to be directly related to increased interest in Bitcoin as it is beyond the government's control.

However, as seen in Argentina in this report, cryptocurrency adoption will not materialize unless the government, or any government, prioritizes it over traditional bureaucracy. If the government is serious about reducing reliance on the dollar, they should embrace and understand the growing importance of cryptocurrencies.

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