Argentina on alert for the issuance of currency largest of the last three decades

Key facts:

One of every two pesos spent by the Argentine Government from money newly created.

Experts warn a rise in inflation of 51% for the next 12 months.

The health and economic crisis without precedent, created by the pandemic of COVID-19, has forced the argentine Government to resort to monetary emission, the most important of the last three decades. The government measure is by adding more weight to the debate over how far the government can stretch their fiscal resources without deepening the crisis of inflation already facing the country for years.

In 2020, the Central Bank of the Argentine Republic (BCRA), issued more than 1 billion pesos to finance the public sector; a record nominal historical, as points a publication Infobae. The figure may not mean much in a country that is accustomed to breaking records nominal, if you take into account that Argentina lives under an annual inflation rate higher than 50 points, from over a decade ago. However, the monetary expansion is going on, the debate about the effects that will occur in the economy, especially when the experts believe that the trend will continue and the government will continue to loosen the threads of its portfolio, generating more debt and greater crisis of inflation in the future.

A report from the Argentine Institute of Fiscal Analysis (IARAF) points out that the declaration of a pandemic by the World Health Organization last march, left consequences on public finances, creating “the need to increase social spending and health spending to sustain a large portion of the population without own income”.

The argentine authorities have decided to issue more pesos to cover the expenses that generated the pandemic. Source: elluisx/

In that sense, the same report adds that “BCRA distributed a total 740,000 million pesos for the concept of utilities, and a total of 312.000 million pesos for the concept of advances transients. These two components constitute what is called the direct assistance of the Central Bank to the Treasury and represent a monetary emission without backing. The 1.052.000 million pesos of direct assistance from the BCRA imply an emission of 3.5% of GDP estimated for 2020, becoming the highest figure in the last 30 years.”

The issue as support of the public accounts

A report by the Institute for the Development of Social Argentino (IDESA) shows that one of every two pesos spent by the Argentine Government from money newly created and notes that, in the first quarter of 2020, 74% of the funding came from taxes, while 26% was generated by the issuance of currency that the BCRA sends him to the Treasure. He adds that in April of this year, 51% came from taxes and 53% of monetary emission, demonstrating that the issuance of currency became the main breadwinner of the public accounts of the nation.

Taxes are the genuine source of State funding. Through taxes the State appropriates part of the income generated in the private sector that they return to society through public goods. For example, someone makes the sacrifice to pay the VAT for another to enjoy the benefit of receiving a free education. With the issuance, the opposite happens because there is this equivalence. The State provides a service, for example, to pay pensions that no-one has made the effort to support them. The State thus creates purchasing power, without the equivalent of increased production. By having more money, but not more goods and services are generated pressure on prices. The relationship is not exact, nor immediate, but the issue exaggerated is inflationary.

Report of the Institute for the Development of Social Argentino (IDESA).

The Institute of Social Development adds that, other countries of the world also appealed to the monetary emission, but they have done way more moderate than in Argentina, because they have seamless access to credit, have tax systems more robust and have behaviors more prudent in terms of public spending.

The report adds that the monetary emission unbridled generates the false sense that the insulation does not demand sacrifices, and meanwhile in the private sector to produce closures of businesses, wage cuts and job losses. “In the public sector prevail the inertia and the rare vocation to introduce structural reforms. This will make it much more difficult the exit of the confinement, to the extent that the post-pandemic may be worse than the own pandemic”, he says.

The IDESA with data from the Central Bank of Argentina says that the half of public expenditure is financed with monetary emission. Source: IDESA.

Another report of Results of Survey on Market Expectations, published by the BCRA, based on the analysis of economists and commentators to warn that it expected inflation to remain at 51% for the next 12 months. “The forecast of inflation of the analysts for the next 12 months is located in 51,0% (+2,0 p. p. in respect of the last month)”.

The analysts of the EMN also expect a sharp contraction in Gross Domestic Product (GDP) real 2020 9.5% (a drop of 2.5 q. p. with respect to the forecast, the previous month). The TOP-10 of the best predictors of economic growth suggests that the reduction of GDP during 2020 would be on average of 9.4%, (-2,3 p. p. in respect of the pre-survey), as added to the document.

The economist Javier Milei has also been alerting on the issuance of currency over-the-top that it has incurred in Argentina in the last few months. The expert expresses concern about the consequences that he will suffer the population, which will be prey to inflation, such as occurs in Venezuela. The economist explains:

The first thing to understand is that counterfeit money is counterfeit, they are pieces of paper. Originally the scam was that they were wearing (to the bank) an ingot of gold and they gave you some papers. And what did the politicians? Watching others, then when you wanted to go to find the ingots with the tickets that you got, don’t you could carry, that is to say, you cheated. That is inflation, because when you play money above the demand falls, the purchasing power of money. You need an increasing amount of monetary units to buy the same goods. That is to say, it is not that prices are going up, is that in reality the money is losing value.

Javier Milei, economist.

By the above, are becoming more and more visible the cryptocurrencies for the argentines. Last may, the volume of exchange of bitcoins (BTC) in LocalBitcoins has increased significantly in the country. In fact, the figure of us $ 571.942, registered in the week of 4 to 10 may, represents the historical maximum of the volume of trade on the exchange platform P2P. Satoshi Nakamoto, the entity behind the creation of Bitcoin, contemplated in this protocol, the mechanisms of monetary inflation and compensation that would help to bring balance to the criptoeconomía, as highlighted by a publication of Breaking News.

Cryptocurrency Market