The Argentine president has just stunned Argentines with a massive devaluation. Still nothing about bitcoin.
Collapse of the peso
Shock therapy begins in Argentina. Javier Milei has just announced a 54% devaluation of the peso against the dollar. This will be followed by an additional devaluation of 2% per month until further notice.
The official exchange rate therefore increases to 800 pesos per dollar, compared to 366 pesos previously. Or a rate closer to that of the black market (~1000 pesos).
The discrepancy comes from the fact that Argentina has kept the peso exchange rate artificially high since 2019 via capital controls. In other words, by banning certain imports.
By the way, capital controls are why local exchanges can no longer buy bitcoins abroad.
“We are going to find ourselves in a worse situation than before for a few months, particularly in terms of inflation”said Finance Minister Luis Caputo.
Mr. Milei admitted that his recipe for economic stabilization could take up to two years to reduce inflation. “To say anything else is to lie”he admitted.
This is a surprise not announced during the campaign… The Argentines certainly did not expect inflation to explode so quickly.
As a reminder, inflation is above 150% in Argentina. It was 40% per year on average over the last decade. The country also faces low foreign exchange reserves due to lack of sufficient exports.
And the campaign promises? Bitcoin?
Since his election, the president has converted to Judaism in New York, displayed with the right customer of the Lolita Express Bill Clinton without forgetting the American puppet Zelensky. But not much progress on his flagship promise to abolish the central bank.
One obstacle is that its removal and adoption of the dollar as legal tender would require approval from Argentina’s Congress, or even a change to the constitution.
However, although Mr. Milei won the presidency hands down, his Libertad Avanza movement is only the third political force in Congress.
Furthermore, Argentina would still need to have the dollars necessary to replace the pesos. Experts estimate this could require up to $50 billion. Argentina doesn’t have them. On the contrary, Buenos Aires owes $44 billion to the IMF…
Hence this devaluation. Milei certainly has the idea of selling the country via massive privatizations. Enough to possibly recover the dollars necessary for the dollarization of the country.
Unfortunately, selling off the family jewels can only be a short-lived wealth effect. It’s like selling your TV, your sofa and your car for a pittance before renting them out right after. There are no miracles.
Not to mention that adopting the dollar means paying interest to American bankers rather than Argentinians. How could this magically benefit the Argentines?
Finally, can we really hope that Uncle Sam’s straw man will make bitcoin legal tender when we see the Biden government attacking it again in Congress?
To be continued in the next episode.
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