By Richard Giedroyc
Many times inflationary pressures can be seen through the coins and bank notes issued by a country. Argentina is currently facing such inflationary pressures.
According to the Banco Central de la Republica Argentina, Argentina’s central bank, “The incorporation of bills of higher denomination is a practical necessity for the better functioning of cash machines and the reduction of the cost of moving cash around.”
Through another statement the central bank added, “Issuing larger notes is a practical necessity for the better functioning of the ATMs and to lower the cost of moving cash. Nevertheless, the central bank will encourage the use of electronic means of payment and will move forward on that direction in the near future.”
Argentina plans to continue issuing 1- and 2-peso coins, adding 5- and 10-peso coins to this mix during 2017. At the same time the central bank will begin issuing bank notes in denominations of 200 and 500 pesos later during 2016, adding a 1,000-peso bank note during 2017. Argentina’s lowest denomination bank note is currently the 5 peso, while the 100 peso is the highest denomination.
Coins were issued in denominations of 1, 5, 10, 25, and 50 centavos in 1992, with a 1-peso coin introduced two years later. By 2001 the 1 centavo was gone. Today even a 2-peso coin is seldom seen in circulation. Older notes dating from 1992 are still convertible. The status of older coins was not available in time for this article.
Former Argentine President Cristina Fernandez was able to keep Argentina’s peso afloat due to a currency agreement swap with China. Experts are warning that the current strategy will result in large increases in the value of pesos in the market, which in turn will deplete the central bank’s foreign currency reserves while raising inflation rates.
Former Economic Minister Axel Kicillof has rejected the concept of using higher denomination bank notes, saying due to the expansion of electronic commerce they simply aren’t necessary. During 2015 Kicillof said, “We have moved forward a lot in expanding the use of banks, electronic trading, and all means of payment that aren’t with notes, which is becoming obsolete. The largest note in the United States is $100, which is in line with the one we have in Argentina.”
Former Central Bank President Alejandro Vanoli agrees, adding: “Leading countries are moving to a system that uses more and more the electronic means of payment to make transactions easier. The future points to the disappearance of the notes so the solution isn’t to print more. We’ll work toward lowering the use of notes.”
Both men are former officials. Gustavo Marangoni is a former Banco Provincia head and current economic adviser to presidential candidate Daniel Scioli. According to Marangoni, “It’s a technical need to make people’s lives easier. We need larger notes.”
Scioli lost the election, but President Maruicio Macri agrees larger denomination currency is necessary. Argentina is fighting double digit inflation and a devaluation of its currency. Macri’s center-right government is attempting to bring inflation down to within 20 to 25 percent during 2016 from the 28 percent experienced during 2015. The goal is to bring inflation to within five percent by 2019.
Federico Sturzenegger is the current head of the central bank. In April 2015 Sturzenegger said, “I would eliminate the 100-peso note and not replace it, leaving only coins and removing all notes would be ideal. CFK has done everything wrong regarding monetary policy with the exception of the decision to not print larger bills. Printing larger bills would mean taking a step in the wrong direction as it would encourage the informal economy.”
When taking office Sturzenegger said of the current bank note situation, “The country had the same ones for too many years even though prices have multiplied more than 10 times.”
The Jan. 18 issue of Business Recording reported, “Cash machines often run out of money over long weekends because they cannot contain enough bills to satisfy demand.”
The current exchange rate, according to the most recently published issue of MRI Banker’s Guide to Foreign Currency, is 9.41 pesos to the US dollar, but is only 15.2 pesos to the dollar in the “parallel market.”
This article was originally printed in World Coin News.
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