03 September 2019, 10:09
2 min reading
Attempting to subdue the price of the Argentinian Peso, which already fell by 34% against the US dollar since the start of August, the government decided to limit the purchase of foreign fiat currency. In an effort to stabilize the national currency, the Argentinian government imposed capital controls, limiting individual citizens to only $10,000 on
Attempting to subdue the price of the Argentinian Peso, which already fell by 34% against the US dollar since the start of August, the government decided to limit the purchase of foreign fiat currency.
In an effort to stabilize the national currency, the Argentinian government imposed capital controls, limiting individual citizens to only $10,000 on a monthly basis.
As Bloomberg reports, the Central bank set a timeframe of five days for exporters who deal in foreign currency to justify their actions, while businesses require special permission to convert assets to foreign currencies. Compared to previous historical measures, Argentinians should feel a sense of relief as citizens in older eras of instability were limited to converting only $2000 of their monthly savings.
Similar to the case of the Venezuelan economy, which hit levels of hyperinflation, individuals believe that the economic instability will fuel the price of cryptocurrencies. Perhaps only a coincidence, some believe that yesterday’s decision brought the rise of bitcoin, which at the time of writing, increased by 3.06% in the last 24 hours.
Referring to the government’s decision, lead attorney of crypto advisory firm Byrne & Storm, Preston Byrne, tweeted ‘Buy Bitcoin’ on his profile. Taking a look at crypto trades on local exchanges, the last week experienced a surge in trading volume concerning the Argentinian peso. If the situation would follow the fate of Venezuela, trading volumes would continue to increase.
Mauricio Macri, who has been in office since his successful election in 2015, rationalized the decision by stating that tighter control on foreign assets will lead to ‘the normal functioning of the economy’.
As a reminder, Argentina held primary elections in August, in which President Macri suffered a humiliating defeat. While affecting the political stage, the event also led to investors losing hope in the Argentinian economy, with the Argentinian peso losing 25% of its value.
In terms of the local cryptocurrency market, local exchanges sold bitcoin at a $1000 price premium. For now, Macri’s only objective is to survive his mandate without an economic collapse.
The decision on capital controls will last until the end of the year. However, if the Argentinian Peso were to destabilize further, the government would reenact the decision, if not even tighten it further.
Fearing that the sudden decline would lead to another default, many Argentinian citizens decided to withdraw assets from their bank accounts. With the unemployment rate reaching 10.1% in March 2019 and the annual inflation coming close to 40%, their decision may as well be justified.
At the current rate, Argentina may lose its net reserves of $15 billion if the national currency were to continue to plummet. The situation appears appalling as the government failed to repay its short-term debt, which led to escalating interest rates.
In an ironic turn of events, Mauricio Macri followed the steps of previous leaders who he dearly criticized, employing the same historical measures which led to previous periods of instability.
While Argentina is not even close to the situation Venezuela reached, the country’s citizens may decide to convert their savings to bitcoin ahead of time. Reported by Cointelegraph in March 2019, a VC investor named Tim Draper decided to meet with the Argentinian president, urging him to resort to blockchain technology and cryptocurrencies in an attempt to prevent another financial disaster.
According to Draper, the billionaire investor made a bet with the President, proposing that he would ‘double his investments in the country if the peso would be valued higher than Bitcoin.’ However, the president would need to declare bitcoin as a national currency if the national peso didn’t match higher than Bitcoin. Draper believes that the decision would bring back confidence in the cryptocurrency.