In a surprising move two years ago, El Salvador made global headlines as it became the pioneer in officially adopting Bitcoin as a recognised, legal currency.
Reporters from various corners of the globe flocked to this Central American country with a population of 6.3 million, all eager to chronicle this ground-breaking shift in the monetary landscape.
The date that marked this transformative development was September 7 2021, a date when a small nation briefly captivated the entire world’s attention.
Since that time analysts, investors, as well as the usual army of cynics (almost always based in wealthy countries), have been debating which country, if any, would be next to make Bitcoin legal tender after El Salvador.
For example, I wrote for City AM previously that it could be Panama, Paraguay, Guatemala, or Honduras.
But there’s a new nation that is gaining an increasing amount of speculation on this issue: Argentina, a country that’s fighting against triple digit inflation, its highest in over three decades, and that could climb to near 200% by the end of the year.
“Rapidly rising prices, which have sped up this month after the government allowed a near 20% devaluation of the peso currency, are hammering consumers, pushing up poverty and stoking voter anger ahead of October general elections,” reports Reuters.
The argument that Argentina could be next holds water for three main reasons.
First, while it is a bold and unconventional move, it could potentially yield several significant economic benefits.
The Argentine Peso’s tumultuous history of devaluation has eroded trust in the national currency. By incorporating Bitcoin as legal tender alongside the Peso, Argentina can offer its citizens an alternative means of conducting transactions and storing value. This diversification could enhance economic stability and resilience.
One of the most compelling advantages of adopting Bitcoin is its potential to serve as a formidable hedge against hyperinflation. Unlike traditional fiat currencies, which can rapidly lose value due to excessive money printing, Bitcoin has a fixed supply. This scarcity feature can safeguard the wealth of Argentinians, offering a haven for their savings in times of economic turmoil.
Also, Bitcoin’s decentralised nature and accessibility through smartphones can bridge the financial inclusion gap, enabling those without bank accounts to participate in the economy. Citizens can store, send, and receive funds securely, potentially reducing the economic disparities exacerbated by hyperinflation.
Second, presidential candidate Javier Milei, known for his fiercly pro-Bitcoin approach and libertarian economics – amongst other less salubrious ideas – earned the top spot in Argentina’s primary last month, ahead of the October general election.
And third, Argentine leaders will be looking to El Salvador to see if the Bitcoin experiement has been successful.
It’s a mixed report, but then it always would be when launching a new legal and digital tender with no roadmap to do so.
Although banking giant Santander in a recent report writes: “The bottom line is that the Bukele administration is now consistently showing a market friendly approach on policy management that further reaffirms its willingness to repay… debt.”
It goes on to say that the country, which has a bleak history of defaulting on its international debt obligation, is now unlikely to do so until at least 2029 – probably the furthest out they will go with such analysis.
Bitcoin as legal tender offers Argentina a unique opportunity to address some of its long-standing economic challenges, although it does come with plenty of risks too, of course.
Yet to me, the environment there now seems be ripe for leaders Buenos Aires to seriously consider taking the plunge.