Argentine lenders running out of storage

Argentina is facing significant economic and financial instability, with the country defaulting on its debt in 2020 and implementing capital controls to protect its national currency. The country, which is the second largest economy in South America behind Brazil, currently owes $40 billion to the International Monetary Fund (IMF). Inflation is close to 100%, with 40% of the population living below the poverty line and 60% of minors experiencing hunger or undernourishment.

The country’s financial system is also facing practical issues due to the devaluation of its largest denomination banknote, the 1,000 pesos. Currently, the 1,000 pesos is worth about $5.40 on official exchanges, but only $2.65 when valued at real-world exchange rates. The president of the Argentine Chamber of Commerce and Services (CAC), Mario Grinman, has called for the issuance of 5,000-peso banknotes to help the situation.

Since its introduction in November 2017, the 1,000 pesos has lost almost 100% of its purchasing power. In 2017, it covered almost half of the basic basket, but today it does not reach 6%. As a result, Argentines are forced to carry hundreds of banknotes to pay for ordinary purchases, making transactions increasingly difficult.

The amount of money in public circulation in Argentina has risen from 895 billion to 3.8 trillion pesos in the last three years, primarily to finance budget deficits, according to the Central Bank. This has led to banks and business groups calling for the regulator to print higher-value bills for years, saying it would make the system more efficient for banks, businesses and citizens. The Central Bank of Argentina has yet to comment on these requests, and no announcement on the issue is expected in the near future.