Perilous Situation | Argentina Defaults on Foreign Debt, Fiat Currency Plummets, Authorities Reinstate Crypto Ban to Prevent Capital Flight

Local media in Argentina pointed out that due to the increasing cross-border transactions conducted through cryptocurrencies, the government of the country will crack down on domestic cryptocurrency trading. However, some experts also suggest that this measure is closely related to the depreciating local fiat currency in Argentina, as the authorities aim to curb the public's use of cryptocurrencies as a means to exchange for US dollars.

What's Happening in Argentina?

According to previous reports, Argentina is experiencing a severe economic recession, with its currency, the Argentine peso, losing over 85% of its value against the US dollar in the past five years. The country has been in an economic crisis for 18 months and on May 22nd, it defaulted on its debt for the 9th time in its history. The Ministry of Economy announced on May 21st that the deadline for debt negotiations has been extended to June 2nd from May 22nd.

Aside from facing one of the most serious debt crises in its recent history, Argentina has officially surpassed 10,000 confirmed cases of COVID-19, reaching a total of 10,649 cases. As a result, the lockdown in the capital city of Buenos Aires has been extended until June 7th.

Authorities Attempt to Stabilize the Value of the Currency

According to reports from Argentine media outlet El Cronista, the country's Financial Information Unit (FIU), responsible for monitoring anti-money laundering policies, is seeking stricter control over cryptocurrency transactions.

As reported by Decrypt, Carlos Alberto Cruz, the head of the country's Financial Information Institution, stated in a recent declaration:

In recent times, there has been an increase in businesses using crypto assets, which are often carried out by individuals intentionally evading international standards and not complying with anti-money laundering frameworks.

The Financial Information Unit aims to gather information on cryptocurrency traders and institutions, and require banks, credit card companies, exchanges, mutual funds, and even entities like museums, sports associations, and NGOs to report suspicious transaction activities.

In fact, in November last year, the Central Bank of Argentina imposed a ban prohibiting consumers from using credit cards to purchase Bitcoin and other cryptocurrencies. While this policy was intended to curb capital outflows from domestic assets to Bitcoin, its effect has been the opposite, with Bitcoin trading volumes continuing to rise.

According to data from Coin.dance, Bitcoin trading volume in the country has surged significantly, reaching a historic high in the week of May 9th.

Due to the rapid depreciation of the local currency and longstanding economic imbalances, Argentine citizens seem to be abandoning the peso in favor of more stable foreign currencies, even resorting to volatile cryptocurrencies as a means. The Argentine authorities are making efforts to prevent funds from flowing outside the financial system. With the debt negotiation deadline approaching next Tuesday, failure to handle the situation properly could trigger a larger financial crisis.