Bitcoin, Dollars and Pot-Banging Protests in Argentina

Inflation and Monetary Restrictions

Before we dive into the details of the underground markets in
Argentina, let me try to paint the picture of the current economic
situation in Argentina.

For several years the Argentine inflation rate has been bumping
around 25-30% per annum, according to figures published by independent
institutions. The Argentine government doesn’t recognize the independent
estimates and has allied with INDEC, the National Statistics Institute,
to calculate inflation figures 2-3 times lower than the independent figures.
The interesting fact is that the peso’s fixed exchange rate with the
dollar is only taking into account INDEC’s inflation rate of 8-12%,
causing overvaluation of the peso by not incorporating the true higher
inflation rate. INDEC is indeed a neat implementation of an Orwellian
“Ministry of Truth”, and the magic calculations have raised concerns
with IMF who is threatening to expel Argentina from the organization.

Naturally the high inflation rate has caused capital flight out of
Argentina, and every Argentine with a bit of savings is looking to
exchange their pesos into something more secure. In order to stop the
capital flight and fortify the central bank’s reserves, the government
has implemented strict measures to prevent Argentines from obtaining
foreign currencies. For example, only if you are travelling abroad are
you allowed to exchange pesos for dollars legally, but there is a limit
of 100$ per day abroad. Recently the government also imposed a 15% tax
on all foreign credit card purchases, and a 50% custom duty on any goods
which Argentines purchased abroad.
Aside from the outrageous taxes, this legislation completely flashes
your personal banking details to government officials, who can then
snoop on your shopping list.

The complex regulatory environment has caused Paypal to suspend all domestic transactions in Argentina. Ebay and Amazon has followed suit with similar restrictions.

The Blue Dollar

Luckily before travelling to Argentina, my girlfriend and I were
tipped off to this news and carried along dollars in cash when entering
the country. One can exchange dollars at the blue market rate simply by
heading to Bs. Aires main shopping street, Calle Florida. Here lots of
street vendors are drifting around advertising their business to anyone
who looks like a potential customer. The street vendors here are known
as arbolitos by locals. Arbolitos means “little trees”, a reference to
the street vendors are full of “green leaves”. If you are looking to
exchange dollars the street vendors will quickly approach you and
provide a quote. If you accept the quote, you just head to a nearby
jewelry or electronics shop and complete the transaction.

The Bitcoin Hero

Another possibility is Bitcoin,
a new electronic currency, which has been flourishing online for the
last couple of years. In our situation Bitcoin has turned out to be a
great vehicle to transfer money into Argentina and achieve the blue
dollar exchange rate. I completed my first bitcoin to pesos transaction
last week and gained 25% in comparison to the official exchange rate.

The way it works is that you simply buy some bitcoins online through one of the many bitcoin exchanges. Mt.Gox is by far the largest but there are local alternatives as well, such as Bitcoin Nordic.
Once you have your bitcoins you identify an Argentine who is on the
market for bitcoins at the blue dollar rate. Given the economic
situation there are lots of Argentines who are looking to get rid of
pesos in exchange for other more secure assets.

I believe the bitcoin adventure is just kicking off in Argentina.
Also I’m keen to see how the 200.000 Argentines demonstrating for
libertad in the Plaza de Mayo might use bitcoin to fight the monetary
restrictions themselves. Maybe it’s an even better approach than banging a pot?

AT THE INTERSECTION OF FREE BANKING, CRYPTOGRAPHY, AND DIGITAL CURRENCY