Thursday, June 30, 2016

Can Argentina (Make) Change? Are Thinner Wallets Better?

This week, many Argentines will find their wallets a big lighter – and that may be a good thing. It’s because a new 500-peso banknote (pictured above), with a value of roughly US$33 has just gone into circulation, and it solves a whole bunch of problems – at least temporarily.

That’s largely thanks to mismanagement by Argentina’s previous government, which refused to issue any banknote larger than 100 pesos (less than US$7) even as the peso plunged in value against the US dollar and other foreign currencies. It was part of their effort to deny an inflation that reached upwards of 40 per cent per annum (though it never got to the level of the 1970s and 1980s when, if Argentine governments spoke hopefully of 50 percent inflation, they meant per month).

From my own perspective, traveling extensively every year in Argentina and Chile – crossing the border with some frequency – it’s meant a wallet uncomfortably thick with Argentine currency. It was also bad for banks, though - ATM machines, obviously, do not have an infinite storage capacity and, if demand was high, they could empty quickly.

Not only that, the armored cars that refilled those ATMs had limited capacity as well, and restocking the machines required more frequent visits. This was especially troublesome in popular tourist destinations like El Chaltén, which received infrequent service from banks in the provincial capital of Río Gallegos (ironically enough, the political home base of former president Cristina Fernández de Kirchner and her husband/predecessor, the late Néstor Kirchner).
However necessary the larger bills may be, they’re no miracle cure for Argentina’s economic malaise – larger bills might, in fact, fuel the fear of inflation that’s always latent in Argentina. I still remember, more than 30 years ago, the fact of million-peso banknotes that became barely worth the paper they were printed on; more pragmatically, I wonder whether, in the none-too-distant future, today’s shiny new banknotes might fill my wallet as uncomfortably as their lower-value predecessors.

For the time being, though, I welcome the new bills as a contribution to easing economic problems that still need longer-term solutions, but there could be glitches. It’s quite possible that, as one sardonic Argentine journalist tweeted, “I come from the future. The taxi driver has no change for a 500-peso note.”

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