The use of bitcoin has more than doubled in the past year in Argentina as government controls have delivered economic stagnation and double-digit inflation, according to the London, U.K.-based Financial Times . The government has restricted access to foreign currency and created an overvalued currency exchange rate.
One small business owner, the owner of a budget hostel in Buenos Aires, has found bitcoin helpful in the face of the country’s overvalued currency exchange rate. She takes credit card payments from foreign tourists in return for bitcoin. She can then sell bitcoins on Argentina’s unofficial currency market for 50 percent more than she would get at the official exchange rate.
Bitcoin is growing faster in Argentina than other Latin American countries, according to bitex.la, a regional bitcoin exchange.
Franco Daniel Amati, a co-founder of Bitcoin Argentina, says bitcoin’s prospects remain strong in Argentina as only half the population entrusts their money to the formal banking system.
Raids on currency trading houses and other government measures have driven the peso’s black market value to its lowest levels since the country defaulted on its foreign debt last year.
With presidential elections scheduled for October, investors hope a new government will be able to untangle the capital controls that have hurt investment in the country’s economy.
One leading presidential candidate, Daniel Scioli, governor of a province, favors a gradual approach to changing capital controls.
Another leading candidate, Mauricio Macri, mayor of Buenos Aires, prefers a more immediate solution.
Also read: Argentina: Bitcoin Just Received An Unintentional Boost
Jose Luis Espert, an Argentine economist, recommends a fast removal of capital controls but says it must include a technically solid economic plan that inspires confidence in the markets. Without such a plan, he says, “shock treatment” can be as harmful as a gradual approach.
Jose Urtubey, vice president of the Argentine Industrial Union, questions the “shock therapy” approach. While capital controls contributed to a 2.6 percent decline in the country’s industrial sector last year, Urtubey fears central bank reserves will not withstand the pressure that quickly removing the controls will bring.
The lack of consensus on a solution to the country’s macroeconomic imbalances will lead to more problems, Espert says.
Images from Shutterstock.