In the Age Of Milei, How Will Argentinians Deal With Monetary Freedom, The Dollar, And Bitcoin?

Argentina's new President, Javier Milei, aligns with Bitcoin principles, advocating for a free-market approach and inflation control. While the bitcoinization process may take time, his focus on sound money raises speculation about potential Bitcoin adoption

In the Age Of Milei, How Will Argentinians Deal With Monetary Freedom, The Dollar, And Bitcoin?
January 25, 2024
Eduardo Prospero

Against all odds, Javier Milei beat the two-party system and became the President of Argentina. The first self-proclaimed libertarian to do so in the planet’s history. Among his most controversial campaign promises is the obliteration of the country’s Central Bank, which many interpreted as a commitment to dollarize the nation. The truth is, Milei’s plans for Argentina are far more ambitious. 

In November, Ambito quoted him stating that people "will be able to transact in any currency. Monetary freedom is part of what we want to move forward with." And on December 21, Minister of Foreign Affairs, Diana Mondino tweeted: “We ratify and confirm that contracts in Bitcoin may be agreed in Argentina.” 

In any case, according to Milei in Ambito, "the currency will be the one chosen by the Argentines." This begs the question, will the country transact in dollars, euros, Bitcoin, stablecoins, or Stablesats? The obvious answer seems to be the always popular dollar and its synthetic alternatives. However, considering the US Government’s money printer is working non-stop, could the Argentinian people eventually flock to Bitcoin? And if they do, how long will the process take?

Before jumping to conclusions, let us explain how much the President’s ideology resembles that of the Bitcoin community. Both are based on Austrian Economics ideas, and that’s just the beginning. 

Low Time Preference and Javier Milei

For people who haven’t invested their time studying Bitcoin, stating that Argentinians could choose Satoshi Nakamoto’s invention over all of the other available currencies might sound like an exaggeration. However, in a fair fight, sound money always wins. Javier Milei proposes a free market in which subsidies and presidential decrees will not be a factor, and Bitcoin is the hardest money ever created. The bitcoinization of Argentina might not be wishful thinking after all. 

In July, Javier Milei told El País

"I am the only one who talks about an economic program designed for thirty-five to fifty years. If you get stuck in the short term, it ends badly. Ending inflation is not a technical problem: it’s the easiest problem of all. The most complicated problem is economic growth."

This speaks about low time preference, the tendency to delay immediate gratification in favor of investing, building, and getting a greater payoff in the future. Low time preference is one of the main characteristics of the Bitcoin philosophy. The concept entered the ecosystem driven by economist Saifedean Ammous’ magnum opus “The Bitcoin Standard,” which explains:

“The better the money is at holding its value, the more it incentivizes people to delay consumption and instead dedicate resources for production in the future, leading to capital accumulation and improvement of living standards, while also engendering in people a low time preference in other, non-economic aspects of their life.”

In September, The Economist asked Javier Milei “Could crypto play a role?” He answered:

“No, no... I don’t know, that is the decision of agents. For example, in Guatemala, companies engaged in coffee production issued their own currency.

In fact, currency is a private sector invention, not the invention of a bureaucrat.”

Argentinians will probably use every available currency at first. That includes every national banknote with emphasis on the dollar, the thousands of Bitcoin knock-offs that people call “altcoins,” stablecoins and Stablesats, gold and silver, you name it. However, in this scenario, logic says that in a long enough time frame the strongest currency will devour all others. Which one will that be? The one that leads to “capital accumulation and improvement of living standards.” The hardest money ever created, Bitcoin.

Inflation, the hidden tax

The new President aims to stop inflation and sees the dissolution of the BCRA, the country’s Central Bank, as absolutely necessary to achieve that goal. The previous administration had the money printer working overtime. It left Argentina with a record-breaking “9.439 billion banknotes in circulation.” Milei’s first order of business was to “devaluate” the peso by 50%. Of course, another way of looking at it is that Milei closed the gap between the official dollar-to-pesos rate and the always-present Blue Market one. Which many consider to be the true market value. 

Prices in the country have been going up daily for years, but since Javier Milei won the election the phenomenon turbocharged. The private industry anticipated the President’s austerity plan and remarked price tags like there’s no tomorrow. Just in the first month, fuel went up 25% and meat doubled in price. Argentina is already used to these fluctuations, and still, the latest surge has everyone in a panic.

Printing new money devaluates all banknotes in circulation, which leads to inflation. Why do we say that inflation is a hidden tax? Let’s revisit “The Bitcoin Standard” for an explanation:

“Government simply increases the money supply to finance any harebrained scheme it concocts, and the true cost of such schemes is only felt by the population in years to come when the inflation of the money supply causes prices to rise, at which point the destruction of the value of the currency can be easily blamed on myriad factors, usually involving some nefarious plots by foreigners, bankers, local ethnic minorities, or previous or future governments.”

Once again, this idea matches Javier Milei’s vision almost perfectly. In the already quoted El País interview, the President said, “money issuance is a scam because it leads to the loss of purchasing power. It is a way of taking money out of your pocket by force, without your knowledge.” And accused the previous government of issuing “an equivalent of 16 points of the GDP [Gross Domestic Product] and that means that the State has swindled the Argentines for about 25 billion dollars per year."

Javier Milei and the OTHER Central Bank

According to the new President, closing Argentina’s Central Bank is a “moral imperative.” Sure, but doesn’t that action leave the country at the mercy of the FED, the US Central Bank? That institution is also printing bills non-stop. Plus, in this scenario, the Argentinian government would surrender control of the money printer to an external actor. Which is not ideal. When The Economist posed that question, Milei doubled down on monetary liberty: 

“But again, it is a system of currency competition. That is to say, you can liquidate the central bank in dollars, but the currency you use can be any currency.”

Arguably, the country is already dollarized. For years, most if not all high-value transactions occurred in dollars. And lately, even rent is denominated in Federal Reserve notes to avoid messy monthly negotiations. Plus, according to Argentina’s resident and geo arbitrage expert BowTiedMara, “estimates of 2020 stated that Argentine savers have around $200 billion USD in paper dollars, which means that the country owns 20% of the physical dollars that circulate outside the United States.” The 2001 crisis and the “corralito” phenomenon are still fresh in the country’s memory, and people are protecting their wealth in any way they can.

Is Bitcoinization Possible in Javier Milei’s Argentina?

The Economist asked the President if, in the context of his proposal, the dollar had already won. Javier Milei’s answer is in line with a possible bitcoinization, even if he doesn’t mention it. “Well Argentines have historically chosen the dollar, but it does not have to be the dollar. If you are an oil company, you can make your contracts in wti, who cares? If you are in gas, in btu. And if you are a farmer and you farm soybeans, you can choose the price of soybeans in Chicago.”

The thing is, a global, auditable, neutral currency that everyone (or no one) owns already exists. It has been working without a glitch for almost 15 years. People will try any other currency at first, but game theory indicates that the most convenient and hardest will eventually take over. Nevertheless, not even the most hardcore believers in the Bitcoin network consider that the bitcoinization of Argentina is imminent. It will probably be a long and hard process.

Our Guest Weighed in On Bitcoin’s Chances Under Javier Milei

We asked La Crypta’s CEO Agustín Kassis about the percentage of people he sees using bitcoin under Milei’s mandate, “Only the richest 5% of Argentina has the capacity for transactions that can be considered as high value. I believe that a large percentage, 30%, may come to hold Bitcoin. At least in exchanges.” La Crypta is a crypto-oriented community center that produces bitcoin products.

About the prospects of bitcoin in the country, Kassis said, “I think Argentina is in a unique position to seize the bull run of 2024. The country is on the verge of hyperinflation, and the population will be able to discuss and decide freely what currency to use. Bitcoin has a high chance of being considered as an alternative and sow the beginnings of hyperbitcoinization, in maybe 4 to 8 years.”

That matches the sentiment of a recent Luke Mikic Twitter thread, “What happens if Bitcoin becomes the dominant currency used in Argentina on the free market? NONE of us are prepared for what happens next… It would become UNDENIABLE that Bitcoin is the world's best money.” Isn’t it already undeniable? Believe it or not, there are still people that aren’t convinced.

For his part, BowTiedMara has a more organized albeit similar prediction. He sees Argentina’s process in stages:

“1) Get books in order (1-2 years)

2) Dollarization or stable local currency (year 2-3)

3) Argentinians able to save, economy pumps (year 3+)

4) Saving more in Bitcoin (year 3-4)”

According to BowTiedMara, for hyperbitcoinization to happen, Javier Milei would have to do extremely well and get reelected. “It definitely depends on how his presidency develops.” The geo arbitrage expert has an extremely controversial caveat, “what would increase the bitcoinization here is if they decided to start a CBDC. Because the black market is so huge that, if there’s no more cash, everybody would switch to either bitcoin or monero to transact on it.”

Even though it doesn’t seem like a CBDC would be in Javier Milei’s plans, crazier things have happened. For example, Argentina elected a third-party libertarian economist as President.

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