Extreme devaluation: The Argentine currency is already worth more for its metal than as a means of payment

RIO DE JANEIRO, BRAZIL – The uncontrolled inflation and the continuous currency devaluation that Argentina has suffered for decades has meant that the peso, that country’s currency, is worth more for the metals it contains than for the purchase of goods and services. This phenomenon, which began a couple of years ago when the first ads appeared on the internet for people interested in buying coins to melt them down, has worsened after the start of the Russian invasion of Ukraine.

The military conflict has caused high volatility in the value of raw materials such as nickel, a metal present in Argentine coins of old mintage (the new family of coins that was launched in 2018 is made mostly of steel). Nickel, a key element in the production of batteries for electric cars, soared in value after the start of the war, that the London Metal Exchange momentarily suspended its listing after it reached its highest historical price on March 7 , when it marked US$42,995 per ton. Since then, its price has been falling to below US$28,000.

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Another metal present in Argentine coins and sought for casting is copper. This material also experienced a sharp increase in its price on March 7, and then fell again. However, unlike nickel, copper is worth less today (just over US$9,000 per ton) than it was at the start of the year, when it was around US$9,700.

INTERNET ADS

If you dive into social networks such as Facebook or e-commerce websites such as Mercado Libre (widely used in Argentina), you can find publications announcing the purchase of pesos above the nominal value of said coins. In this way, there are advertisements that, for example, offer to pay three pesos for a one-peso coin, or four pesos in exchange for a two-peso coin. Others, for example, offer to buy amounts of coins per kilo.

“The material of money in circulation in a country ends up being worth more than the nominal value of that currency in economies that go through a prolonged period of high inflation, as in the case of Argentina. Especially in the case of coins, the value of the metal increases according to its international price while the nominal value of those coins does not change. The process of increasing the international price of raw materials that we have recently observed also accelerates this process of disappearance of money in currency”, explains Juan Ruiz, from BBVA Research.

Argentina ended last year with an inflation rate of 51.4%, according to data provided by the Indec (National Institute of Statistics and Census), a rise in prices that has continued to increase during this year until closing April with year-on-year inflation of 59%. “There have been antecedents of this phenomenon in all the economies that have gone through processes of high inflation. In Latin America, today we have the case of Venezuela, where there is little money in circulation in bolivars. And it has happened in the past in the region during the hyperinflationary processes of the late eighties in countries such as Peru, Bolivia, Argentina or Brazil. But currently this is not a generalized phenomenon”, adds Ruiz.

COMPARISON WITH THE DOLLAR

Another aspect that serves to illustrate the low value of the Argentine currency is its constant loss of value compared to other international currencies, especially the U.S. dollar, the preferred currency of Argentines to ensure that their savings are not eaten by inflation. However, establishing the exact price at which the dollar is quoted is complicated, since there are several types of dollar in Argentina. The one that Argentines pay the most attention to is the one known as the “blue dollar”, the one that is handled on the black market, which is the one that citizens buy in the so-called “cuevitas”.

The reason why Argentines resort to the blue dollar is because since 2019, when former President Mauricio Macri was still ruling the country, the State re-imposed an exchange trap that prevents citizens from acquiring more than US$200 a month. This lock on the U.S. currency was tightened during the mandate of the current president, Alberto Fernández, who has imposed a 65% tax on the purchase of those US$200 (the State returns 35% after the income statement).

In practice, very few citizens can really access those US$200 a month due to the large number of exceptions imposed by the Executive, which makes the vast majority of people resort to blue, which began May trading at $201. This represents an increase of 31.4% compared to the value it marked a year ago, when it was at $153, according to the history of the blue price of the newspaper Ámbito Financiero.

CHANGING PESOS IN THE CENTER OF MADRID: MISSION IMPOSSIBLE

They do not accept in exchange houses. A person who wants to change Argentine pesos in one of the many exchange houses that are scattered around the center of Madrid will find that none or at least almost none of them accept pesos. The reason, they explain from the Ria exchange house to this newspaper, “is that the stock of pesos is complete.” “People get rid of pesos but nobody comes to buy them. When the stock is complete, we are no longer allowed to acquire pesos until we sell them”, they indicate. Other exchange houses such as Novachanges and Exact Change argue that the main reasons for not accepting this currency are “the great instability of the Argentine peso” and “its great devaluation”.