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Bitcoin, Dollars and Pot-Banging Protests in Argentina

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By The Blue Market
Thursday, October 18, 2012
200.000 people in the Plaza de Mayo
This post is a peep into the underground exchange markets
for dollars and bitcoins in Argentina. For the last couple of weeks, I
have experienced the informal exchange of bitcoin and dollars on first
hand in Buenos Aires. Furthermore, I have realized how both locals and
expats may reap significant gains by using bitcoins as a medium of
exchange.

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

In Argentina the dollar you care about is blue. The reason
is that the difficulty for locals to acquire dollars through traditional
means has fueled a secondary dollar exchange market. The unofficial
exchange rate, known as the “blue dollar rate”, is approximately 25%
higher than the official rate.
For expats, it’s a no-brainer that you are being ripped-off
by withdrawing cash at ATMs from established banks, where the
withdrawal is conducted at the official exchange rate currently around
$ARS 4.70 pesos per dollar. In comparison, if you exchange USD on the
“blue market” you get around $ARS 6.20  pesos per 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.

Above approach is generally safe but I wasn’t too keen on
exchanging dollars with street vendors. Instead I posted a small note on
an online forum and got in contact with a couple living in Buenos
Aires, who were eager to exchange dollars for pesos at the blue market
rate. The snapshot below is the result of this exchange – and what an
underground dollar market looks like.

The Bitcoin Hero

The dollars we brought into Argentina are soon running out,
and we have been looking for alternatives to increase our dollar
reserves. One approach is to cross the border to Uruguay – but you have
the hassle of ATM withdrawal limits and the risk of travelling with lots
of cash. There is also a service called Xoom,
which allows you to transfer money from abroad to various pick-up
locations in Bs. Aires. The magic of Xoom is that they somehow manage to
provide the blue dollar exchange rate. Unfortunately they also require a
US bank account to use its services.

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.

In my case I circulated a note to Eudemocracia’s bitcoin
mailing list announcing that I was interested in selling bitcoins. The
price I offered was the Mt.Gox USD price converted to pesos at the blue
USD exchange rate. Based on the number of replies this was an attractive
offer, and after some email correspondence, I agreed  to meet up with
one contact and conduct the transaction. After getting the agreed pesos
in cash I made a one-click transfer of bitcoins to his online bitcoin
wallet. A bitcoin transfer is instant and non reversible, and the
picture below shows how we could confirm completion of the transaction
on the spot.
Because of the dollar restrictions and the escalating
inflation the demand for bitcoins in Argentina is greater than our
personal need for pesos. Therefore, if you are an expat or just
travelling through I encourage you to explore bitcoin as an alternative
to finance your stay. Not only will you get a 25% higher exchange rate
but you will also help locals protect their savings from being hollowed
by inflation.

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



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