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The Solution To Argentina's Banking Problems Is To Go Cashless
dkatana writes: There is no way back for Argentinian people to trust their own currency. Several governments have used the "Peso/Dollar" exchange to dig into people's savings, reward their friends and limit the freedom of citizens to use other currencies.
Short of Dollarizing the economy again, the only solution for the country is going cashless. People are desperate, and they're looking for alternatives such as mobile payments, Amazon gift cards and Bitcoin to store their savings away from government control. A digital currency could help curb black market exchanges, fight corruption and restore the country's image.
Short of Dollarizing the economy again, the only solution for the country is going cashless. People are desperate, and they're looking for alternatives such as mobile payments, Amazon gift cards and Bitcoin to store their savings away from government control. A digital currency could help curb black market exchanges, fight corruption and restore the country's image.
once one country gets rid of cash, if it works, it'll avalanche. Goodbye to seignorage.
All of the alternatives involve seignorage or equivalent. Mobile payments and Amazon gift cards imply giving the telecom or Amazon an interest-free loan between the date the credit is paid for and the date it is redeemed - which is pretty much exactly the same as seignorage, which gives the government an interest free "float" to fill the gap between cumulative tax collections and cumulative government spending. Bitcoin involves continuous transaction fees (whether explicit or implicit in the mining rewards) that are substantial, but largely ignored by the "tech can disrupt everything successfully" boosterism of the Bitcoin fanclub.
You have no idea how creative the Argentine people are. Especially with inflation running about 30% per year. The official exchange rate is down to a little over eight pesos to the dollar while the "blue rate" is about 14 pesos to the dollar.
After a month in a Hotel in Mar del Plata, Argentina I paid not with cash or a credit card but with two cruise ship tickets that I bought online with my US credit card. The proprietor wanted to take the cruise after doing business in South Florida. He was heading to Miami with two suitcases stuffed with US dollars so he could add to his portfolio of rental condos. Did I forget to mention that he has both French and Argentine passports?
I've spent years in South America. This type of behavior is not exceptional in a country that has an extremely tenuous grip on reality.
My wife is Argentinan, as well as all of her family, and a great deal of our friends. We live in Mexico, and travel to Argentina at least once a year.
The Argentinian exchange rate has dropped in the last year, although not as much as it happened 15 years ago — nor, by far, how it happened 30 years ago. And the local economy is far, far from hopeless— The standards of living in Argentina are quite high, most middle-class people travel outside the country regularly. As a Mexican travelling regularly to Argentina for the last five years, I have seen their life costs go from slightly cheaper to slightly more expensive — and today again slightly cheaper than ours.
My family has their savings partly in pesos, in local banks, and partly in US dollars, in the safe deposits in the bank — AFAICT, they don't have a dollarised bank account. And they have a very decent level of life. My in-laws, as an example, travelled last year one month in Europe, and came to visit for a month in Mexico, without compromising their finances.
This is the second post badmouthing Argentina in Slashdot in the past few weeks. I know I am answering with some (few) personal data points, but that's in the end how reality is: A huge collection of individual stories. And they are far from as dire as you portrait them.
A slight correction. Greece has already received two bailouts worth billions in the last five years . . . with the condition that they will implement necessary structural reforms in their economy. For example, pensions in Greece are way to high for what the people paid in. And their are way too many civil servants.
Greece essentially "cooked the books" and hid state debt. This only works for a while. When this was discovered five years ago, Greece was shutout from the international capital markets: No one would lend to them anymore. However, a lot of private banks had too much exposure to Greece, which forced the Troika, the EU, the European Central Bank (ECB) and the International Monetary Fund, to arrange a bailout, to avoid financial contagion. The private banks received a "haircut", which means that they would only receive a smaller percentage of the money owed to them. Most of the debt now rests on EU taxpayers.
Greece dragged their feet on implementing reforms. So a second bailout was necessary. Things were getting better, as they now had GDP growth. Well, then the Greeks went off at the beginning of this year, and elected a new coalition of Radical Left Marxists, and Right Wingers. And since then, things have taken a major turn for the worse. The new government promised to:
Raise pensions
Hire more civil servants (to reduce unemployment)
Erase bailout debts
Sounds like a nice plan . . . but where do you get the money to finance this? Well, the EU should just give more Euros to Greece! Which is politically untenable for the rest of Europe. The only way this could work, is if Greece had their own currency to devalue. So, in the long run, Greece needs to leave the Euro. Except, a majority of Greeks want to stay in the Euro. Thus, the current Greek government wants to get kicked out, so they can blame the EU for it. But the EU does not want to take the blame, so they won't kick out Greece. What we have now, is a slow speed train wreck.
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
It's not a sideline, it's entirely the point. The German citizenry isn't willing to see their taxes go up again to pay Greek debt that was incurred buying votes. The again in that sentence is the important bit. Germany has already raised the taxes on their people to pay the original Greek bailout. They will NOT allow their government to do it again. And it infuriates them to no end that this happened because the Greek government lied about their spending and borrowing and used much of the proceeds to "buy votes" by raising minimum wages, increases pension plans and other electorate appeasing measures that require cash.
For example, the current Greek government refuses to lower the minimum wage. Most people don't even realize that the minimum wage in Greece is almost 50% higher than in Germany! This goes for almost all the items of the bailout under attack. The most galling thing to most Europeans is that the troika didn't even require the Greeks to cut their higher wage rates, higher pension payments and such to match their European neighbors, they only required that they reduce them partially and this is how the Greeks react?
Coming down to reality is hard, they built up a system with purchased votes that wasn't sustainable and it's a big impact to lower down to reasonable values. I personally don't agree with the austerity push, I think it's catastrophic policy with no historical backing and heavy counter demonstrations that it doesn't even work. But, I do agree with the rest of the Europeans that the EU and IMF have been extremely lenient with Greece and to have it thrown back in their face as asking too much is frankly stupid.
But that's the problem with Greece's current government. They should have attacked austerity, not the measures they are expected to undertake to re-balance their economy with the rest of Europe. Many of the Torika's requirements were real improvements that would have been long term very positive for the Greeks economy and some of those are the ones the Greeks are attacking the hardest, rather than attacking the real problem, which is this Austerity idea that you can succeed by cutting spending during a recession. The Greek economy was heavily damaged by the Austerity drive where the measures should have been more targeted towards competition and divestiture of state assets because it was those very state assets and the salaries they included that bankrupted the Greek government to begin with. And this dragging of the feet on everything and inexperience has just created an environment where everyone in the economy is running for cover. The cuts to the pensions and minimum wage levels should have been done with a permanent freeze to increases until inflation balanced them with the rest of Europe because of the direct and immediate damage a large cut would do. The biggest problem the greeks face is a general disrespect for tax collection, that's what government should be spending their time fixing.