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Why bitcoins are more expensive in Argentina than the US

(@emilyspaven) | Published on August 5, 2013 at 18:24 BST

Article updated on August 6 at 12:36 (BST).

People living in Argentina are paying more for bitcoins than those living in the US as, faced with an annual inflation rate of around 25%, they turn their backs on their national currency.

At the time of writing, data from LocalBitcoins.com shows the average price paid online for a bitcoin in the US is $103.97 and it is the equivalent of $103.50 in the UK. In Argentina, a bitcoin costs around 921.48 pesos (ARS), which is equivalent to $166.97 if you use the Argentine government’s exchange rate of 5.5 ARS to the dollar or $115.23 if using the black market or ‘blue dollar’ rate of around 8 ARS to the dollar.

But why is it bitcoins are commanding a higher price in Argentina?

Official figures put the annual rate of inflation in the country at around 10%, but private economists estimate it to be more than double this. In February 2011, the government started issuing fines of up to 500,000 pesos ($123,442) to economists and consulting firms that refuted the official figures.

The government is hell bent on denying that inflation is a problem and claims there’s nothing wrong with the Argentine economy, however, it doesn’t seem as though the country’s citizens agree.

The average price paid online for a bitcoin in Argentina is equivalent to $166.97 (at the official exchange rate) compared with $103.97 in the US and $103.50 in the UK.
The average price paid online for a bitcoin in Argentina is equivalent to $166.97 (at the official exchange rate) compared with $103.97 in the US and $103.50 in the UK.

Turbulent times

Argentina has experienced turbulent economic times in the past, witnessing a period of severe hyperinflation in 1989, which saw prices rise almost daily and inflation increase to 96.5% in May in the city of Rosario. Unrest in the country culminated in a period of rioting and looting, with the government forced to declare a national state of emergency.

The problem settled, but periods of economic strife were witnessed again over the next two decades. In 2011, with inflation once again rising sharply, the Argentine government announced restrictions on the purchase of foreign currencies to prevent people from shifting their savings from pesos to US dollars or euros.

To access dollars legally in Argentina, buyers have to make a request through the central bank and AFIP (the tax revenue office), which check how much the buyer is requesting and what it is for. If a buyer requests a small amount for an overseas holiday, they may be in luck, but the bank and AFIP frequently reject requests. This has led to the emergence of the highly popular black market.

Argentine entrepreneur Martin Varsavsky said: “Argentines have tens of billions of dollars saved outside of Argentina precisely because every time they trust the banking system they lose. Rich Argentines find ways around the Argentine banking system. The rest lose most of their savings every decade or so. It is sad, but such is the history of economic mismanagement of my home country.”

So precious are dollars in Argentina that the cost of bitcoin transactions carried out in person, with cash, varies wildly depending on whether the transaction is being carried out in pesos or dollars. A bitcoin bought in Buenos Aires costs the equivalent of $166.98 if paid for in pesos (at the official exchange rate) or $115.24 at the blue dollar rate, but just $106.92 if paid for in USD.

A bitcoin bought in Buenos Aires costs the equivalent of $166.98 (at the official exchange rate) if paid for in pesos, but just $106.92 if paid for in USD.
A bitcoin bought in Buenos Aires costs the equivalent of $166.98 (at the official exchange rate) if paid for in pesos, but just $106.92 if paid for in USD.

The PayPal ban

Up until late last year, Argentines were able to easily dodge the currency exchange restrictions and switch their pesos to dollars at a favourable exchange rate using PayPal. A user would simply have to set up two accounts and transfer money between the two, switching from pesos to dollars in the process.

The practice ground to a halt when the online payment service stated that, from 9th October 2012: “Argentina-resident PayPal users may only send and receive international payments.”

This gave way for bitcoin to come to the fore as a viable alternative for Argentine savers. The digital currency is often labelled volatile, but when the alternative is a fiat that will erode savings by a quarter each year, it’s easy to see why many Argentines are turning to BTC.

Franco Amati, founding member of the Argentine Bitcoin Foundation (Fundación Bitcoin Argentina), said the currency is also proving useful to those who have family and friends living abroad.

“Money transfers in and out of Argentina are very restricted and cumbersome. Cryptocurrencies makes all these problems disappear for families which with members abroad, unbanked workers selling their services worldwide, or even for tourists,” he said.

Amati explained that journalists have noticed people are using bitcoin to work around current limitations, so stories about digital currency have started to crop up in local newspapers. This press coverage has further increased interest in bitcoin, causing a rise in wallet downloads in Argentina.

Of the 20 countries responsible for the highest number of bitcoin client downloads in July, only Argentina and India completed more downloads than they did in June. Downloads increased by 9% in Argentina and 10% in India, while they fell by 38% in the US, 52% in the UK and 24% in China.

change-in-download-volume
Downloads of the bitcoin client increased by 9% in Argentina in July.

Spreading the word

Amati explained there are a number of reasons why Fundación Bitcoin Argentina was created: “Each member has their own reasons: protecting individual rights, confronting money monopolies by allowing greater decentralization, advising how to legally operate in bitcoin commercial activities, keeping safe from inflation and the central bank’s policies, supporting privacy, having an efficient worldwide payment processor, and many more.”

However, all members have a shared goal – to promote the use of cryptocurrencies and educate those currently not in the know. The foundation’s ever-expanding meetup group has more than 450 members and around 160 people attended the last meeting in Buenos Aires. Amati is also planning events in other major Argentine cities, such as Córdoba and Rosario, so developers and entrepreneurs in other parts of the country can give presentations about their projects and rookies can learn basic bitcoin wallet usage.

“There are a number of interesting bitcoin projects going on across Argentina, from payment software for restaurant operators to websites for recharging cell phones’ credit. Furthermore, many shops and institutions are starting to accept bitcoin as payment: hotels, bars, IT and graphic design services, local crafts, university courses and even grocery shops,” Amati added.

Merchants

One company that’s trying to make it easier for more businesses in Argentina to accept bitcoin is BitPagos, which Amati describes as being “like BitPay, but for Latin America”. The payment processing company is currently taking part in Boost VC’s summer accelerator program, which is also being attended by seven other bitcoin-related companies.

Nubis Bruno, who set up a bitcoin-friendly e-commerce site for Argentine organic farmer network Tierra Buena, said: “I happen to know the founder of Tierra Buena so I suggested he should start accepting bitcoin and litecoin for online orders. He loved the idea behind bitcoin because organic farmers here are always on the verge of being taxed out of business, and as much as they try not to pay them, they cannot escape inflation. Bitcoin solves that problem and is nicely aligned with their grassroots movement.”

He said that, at the moment, around 15% of the sales going through the site are paid in bitcoin or litecoin, but this is increasing as more people learn about digital currencies.

world-bitcoin-downloads
Bitcoin client downloads increased in Argentina and India in July, but decreased in many other countries, including the US and UK.

Looking to the future

As yet, the Argentine government hasn’t issued any legal or regulatory guidance relating to bitcoin, but if its harsh stance on peso-to-dollar exchange is anything to go by, the digital currency has a tough journey ahead.

Jacob Hansen, who is part of the team behind a documentary about bitcoins in Argentina, stressed that bitcoin may be gaining in popularity in the country, but its use is still by no means widespread.

“I expect bitcoin to become more widespread not only in Argentina but around the world. Bitcoin (or another cryptocurrency) will change the world in the same way the invention of the internet changed the world.

“However, it took 10-20 years from when the internet first was invented and became public till it actually took off for everybody. Bitcoin might do it faster, but still there are some years to go before we get there.”

Image credit: Toniflap / Shutterstock.com

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