Will Argentina become the next El Salvador by bringing Bitcoin to 45 million people?

Written by: Jaleel, Kaori, BlockBeats

"Due to the current situation, we are temporarily unable to display prices on the shelves. Please inquire about prices at the checkout. All cash promotions are suspended until further notice. Thank you for your understanding." This is a notice posted outside a small market in Argentina, reflecting the chaos of the Argentine economy in recent years.

Nathan is a journalist who returned to the capital of Argentina for the first time in ten years at the beginning of April this year and personally experienced this situation. Like everyone else, the first thing Nathan did after landing was to exchange currency, but the exchange rates varied greatly depending on how and where one obtained pesos.

The official exchange rate is one dollar to 220 pesos; after visiting several Western Union offices to exchange money, he was told there was no cash available; with the "guidance" of local friends, Nathan found "cuevas" or the black market on a certain street, where the exchange rate was close to 400 pesos.

However, Nathan faced a second major problem, as the largest denomination of banknotes currently is 1000 pesos, worth less than 2.04 dollars. After exchanging money, he had stacks of banknotes stuffed in his wallet and pockets, and carrying a full backpack of pesos for daily expenses felt extremely conspicuous and made him anxious.

It's hard to imagine that this is Argentina, which was among the top ten economies in the world in the early 20th century. In recent years, influenced by international economic and financial conditions, as well as the pandemic, Argentina's economic growth has not only slowed significantly, but inflation has also reached 100%. The value of the peso has depreciated repeatedly, making it arguably the weakest currency in the world this year. Bank of America has pessimistically predicted that the official exchange rate of the peso will drop to 545 by the end of this year and to 1193 by the end of next year.

Therefore, in the midst of this complex economic situation, many people have high hopes for the upcoming elections in Argentina.

Presidential Candidate Threatening to Blow Up the Central Bank

The new elections will be held on October 22, and the preliminary results from the primary elections on August 13 show that the leading presidential candidate is Javier Milei from the minor party Libertarianism, with a vote share of 31.57%, far exceeding external expectations.

As the current leading candidate, Javier Milei's proposals have sparked significant discussion. The most debated issue is how to address the core problem of Argentina's economy: inflation. Javier Milei's proposed solution is quite unexpected—shutting down the central bank. He even published a book titled "The End of Inflation," detailing the measures he would take if elected president.

In Javier Milei's view, the establishment of the central bank in 1935 marked the beginning of all of Argentina's problems. Before the central bank, Argentina was one of the richest countries in the world, with an average annual inflation rate of only 0.9% from 1880 to 1935. The founding of the central bank in 1935 deceived the people: the average annual inflation rate jumped to 6%. After the nationalization of the central bank in 1946, the average inflation rate reached 250% by 1991. This was a complete disaster.

Javier Milei, an economist and economic analyst, supports the Austrian School of economic thought and is a staunch advocate of laissez-faire capitalism, describing himself as a "short-term anarchist" and a "long-term anarcho-capitalist."

In the blockchain field, the Austrian School is not a foreign concept. The founders of the Austrian School believe that "money is not a state invention." Currently, a must-read in the crypto community is Hayek's "The Denationalization of Money," which clearly expresses that the government and the monetary system must be completely separated. The views in this book were considered shocking in 1974, but the emergence of Bitcoin in 2009 made them seem less crazy, even becoming a great prophecy. Many believe that this book helped inspire Satoshi Nakamoto, who is highly likely to be a libertarian based on Austrian principles.

These Young Argentinians Really Need Cryptocurrency

Under Javier Milei's vision, after shutting down the central bank, Bitcoin will become the main currency as a remedy for Argentina's inflation. Before the presidential campaign, Javier Milei appeared on several talk shows, often promoting the benefits of Bitcoin and cryptocurrencies. "Bitcoin can eliminate central banks," Javier Milei stated.

Javier Milei's unconventional stance resonates with many, especially young voters who are tech-savvy and familiar with the internet.

Bitcoin Argentina spokesperson Zocaro believes that Argentina has seen a growing trend in cryptocurrency usage since around 2020, with many people starting to buy Bitcoin and stablecoins. Sending money to family and friends abroad or purchasing goods from overseas, more and more people are turning to cryptocurrencies due to all the international restrictions, as for Argentinians, who may find that the money they took out to buy bacon in the morning can only afford bread by evening, cryptocurrencies offer a way to preserve value.

Unlike the mysterious "cuevas," Zocaro said, "Cryptocurrency is completely legal in Argentina, and people are starting to notice the inflation of the dollar and view Bitcoin as a possible alternative. Most young Argentinians prefer Bitcoin, Ethereum, and stablecoins. Some provinces, like Mendoza, have already taken measures to allow people to pay taxes with cryptocurrencies.

According to a survey conducted by Americas Market Intelligence in April 2022, nearly 51% of Argentine consumers have purchased cryptocurrency. This figure is significantly higher than the approximately 12% recorded in a similar survey at the end of 2021. The survey also found that as many as 27% of Argentine consumers regularly purchase cryptocurrencies, with the main reasons being investment, inflation protection, and avoiding government control.

While many older Argentinians still prefer to hold cash in dollars, an increasing number of young people and residents are beginning to favor USD stablecoins. "They don't need to deal with cash and can complete transactions via their phones," said a platform providing cryptocurrency trading for Argentine users, noting that two-thirds of Argentine users are under 35 years old.

Is Pro-Bitcoin Stance a Political Strategy?

Javier Milei's bold vision and radical reforms have garnered support from many groups, but he also faces strong resistance from large institutions, authorities, and social forces.

Some believe that cryptocurrencies have not yet been widely adopted worldwide, and many people lack the technical literacy needed to use them effectively, especially vulnerable groups such as children, the elderly, and the disabled. Currently, most cryptocurrency users come from the upper-middle-class elite and educated young people, as they have the ability to access information and foreign currency.

Others express fear of cryptocurrencies, and this fear is not unfounded. Although Argentinians have become accustomed to volatility, the fluctuations in cryptocurrency prices still scare many, as they seek stable savings. Without financial knowledge and economic literacy, cryptocurrencies may not seem like a good safeguard, especially in a landscape filled with Ponzi schemes.

Most importantly, professionals indicate that Argentina cannot adopt a Bitcoin payment solution because the Argentine Senate has approved a $45 billion debt agreement with the International Monetary Fund (IMF), one of the terms of which is to discourage the use of cryptocurrencies.

Critics have begun to question Javier Milei's stance, wondering whether it truly benefits the country or is merely a political strategy to gain votes from young voters who have a deep understanding of technology. These young people are disappointed with the stagnation of the Argentine economy and are even quite averse to traditional financial policies.

After all, some savvy politicians have realized that the young votes in the crypto world are a "battleground" in the national electoral war, especially in places like South Korea, where intense competition and a fervent desire among young people to get rich quickly through crypto trading exist. According to the Financial Services Commission (FSC) of South Korea, there are 3.08 million young people aged 20-39 trading cryptocurrencies, accounting for 23% of that age group (13.43 million), nearly one-fifth.

During the South Korean presidential election in March last year, the current president Yoon Suk-yeol promised to ease regulations on the cryptocurrency industry and also pledged to "take legal action" against those who illegally obtain profits from cryptocurrencies by confiscating assets and returning them to victims. At that time, Yoon Suk-yeol's biggest competitor, Democratic Party candidate Lee Jae-myung, who was seen as the successor to former president Moon Jae-in, not only announced earlier that he would accept cryptocurrencies as political donations for his campaign but also stated that he would mint NFTs for donors as proof of their contributions and souvenirs, with the issued NFTs including Lee Jae-myung's photo and political views.

Perhaps politicians merely view pro-cryptocurrency measures as a golden ticket for their political careers, but in certain parts of the world, the existence of cryptocurrencies is akin to bread and a future for local people.

Related: "In These Countries, Web 3.0 Is Their Bread for Tomorrow"

How Is El Salvador's Bitcoin Experiment Doing Now?

The beauty of cryptocurrencies lies in their decentralized and autonomous technology. Javier Milei's preference for cryptocurrencies is further enhanced by the specific characteristics of the current Argentine economy: long-term inflation and distrust of the government, which diminish the value of money and drive people to seek other sources of value that are not controlled by the state.

This brings to mind the world's first country to adopt Bitcoin as legal tender, El Salvador. On September 7, 2021, the bill officially took effect, and Bitcoin became the legal currency of the country. El Salvador's ongoing Bitcoin "adventure experiment" has attracted global attention.

The first year of the Bitcoin "adventure experiment" did not seem to go smoothly. After the Bitcoin law was passed in 2021, rating agencies Moody's and Fitch downgraded El Salvador's rating and removed it from the rating watch (UCO) list, while the country's dollar-denominated bonds also faced pressure.

Related: "El Salvador's Bitcoin 'Adventure Experiment'"

According to a report from The Block in September 2022, based on the Bitcoin purchases disclosed by El Salvador's President Nayib Bukele, calculating the average purchase price and the value of Bitcoin earlier on September 7, their Bitcoin investment portfolio had lost about 58% of its book value. A month later, a new poll showed that 77% of people believed that adopting Bitcoin as legal tender alongside the dollar "was a failure," and that the president "should not continue to use public funds to purchase Bitcoin."

However, President Nayib Bukele was not affected by this. In November 2022, he stated on social media that starting tomorrow, he would buy one Bitcoin every day. Under Nayib Bukele's insistence, two years later, as Bitcoin prices began to rise from the bottom, the status of El Salvador's Bitcoin "adventure experiment" has changed significantly.

On January 24 of this year, the Salvadoran government repaid an $800 million bond that was due, including all principal and interest. Some investors in Salvadoran international bonds reported returns of 60% this year alone, and even with such high returns, some believe they can continue to hold. A report released by JPMorgan in early August on emerging markets in Latin America indicated that El Salvador's data has been generally optimistic in recent months, with the fiscal deficit continuing to decline.

Clearly, El Salvador's bonds have also caught Wall Street's attention. Firms like JPMorgan, Eaton Vance, and PGIM Fixed Income have recommended or purchased Salvadoran government bonds, betting that these bonds will continue to rise. According to Bloomberg data, Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG have also purchased Salvadoran bonds since April.

Recently, Nayib Bukele has repeatedly posted "I told you so" on social media, proudly showcasing his governance achievements. Nayib Bukele also claimed that since Bitcoin became legal tender, El Salvador's tourism industry has grown by 95%. Now, according to a new opinion poll by TResearch, about 94% of Salvadorans intend to vote for the current president Nayib Bukele to continue serving as president.

Looking back, many of the doubts people had about El Salvador's Bitcoin experiment still exist today. However, El Salvador has gradually stabilized its economic order, transforming from a country once labeled by the media as the most dangerous in the world to one that officially reports zero homicides.

The leading vote share of pro-Bitcoin presidential candidate Javier Milei also serves as evidence that Argentina may follow in El Salvador's footsteps in the future.

Although the volatility of Bitcoin often leaves investors anxious, compared to the economic turmoil in some third-world countries, cryptocurrencies are one of the few swords they have to break through. Perhaps what these young people want is simply a stable income, so that their hard-earned salary does not depreciate by 50% as soon as they receive it. Politicians may use cryptocurrencies as a tool to garner votes, but ordinary people, who hold the power of the ballot, just want to make choices for a foreseeable future.