Tuesday, January 25

4 lessons left by the corralito in Argentina, 20 years later

Key facts:
  • In 2001, the Argentine government eliminated the 1: 1 with the dollar and limited bank withdrawals.

  • Hands tied, the population lost a large part of its savings due to a sudden devaluation.

Every December 3, a government decision is remembered in Argentina that caused despair and anguish in the people. The dollars in the banks became pesos, with a strong devaluation in between.

“He who deposited dollars, will receive dollars” is a phrase that, sadly, remained for the story. The words of the then president Eduardo Duhalde in 2002, after the outbreak, the.

Thus, a large part of the population lost their savings while the presidents paraded through the Casa Rosada – there were five in a week – without knowing how to put out a fire that, among the ashes, leaves some lessons for the future.

In what context did the corralito take place?

At the end of the eighties, still with Raúl Alfonsín as president, Argentina was experiencing hyperinflation. The austral, legal tender at that time, was losing more and more value against the dollar and prices soared in the local economy.

With the assumption of Carlos Menem as president, Domingo Cavallo took over as Minister of Economy in 1991. This official was responsible for the Convertibility Law, which established that the new national currency, the Argentine peso, was equal to one US dollar. Thus, “bye” hyperinflation and “see you” devaluation.

However, this ended up turning into a time bomb. The new fixed exchange rate implied that all deposits in banks or financial companies had to have their equivalent backing in dollars to face eventual customer withdrawals. However, that did not happen, since the country did not have that amount of dollars to meet the demand.

In order to sustain this scheme, Argentina resorted to a foreign debt that grew over the years like a snowball falling from Aconcagua. The country went from owing more than USD 61,000 million to international organizations in 1991 to exceeding USD 85,000 million in debt by 1994. Five years later, in 1999, the figure was a whopping $ 146 billion.

A course that led to the inexorable devaluation

Argentina’s creditors for taking on debt were mainly the International Monetary Fund (IMF), the World Bank (WB) and the Inter-American Development Bank (IDB). Yes, familiar faces today too. In addition, public services were privatized to cut expenses and make up for the current trade deficit, since the country bought more than it sold.

With all this, access to international credits became almost a chimera, unless one condition was met: devalue the currency. When the rumors of the elimination of the fixed exchange rate and the devaluation reached the people and were confirmed on Sunday, December 2, by Minister Cavallo himself – who had left office in 1996 but recovered it in 2001, with Fernando De la Rúa as president— panic spread. 24 hours later, on Monday, a crowd rushed to the banks to withdraw their dollar savings.

However, it was late. On December 3, 2001, Cavallo’s decision to limit weekly withdrawals to 250 pesos was finalized. It was an appropriate amount to live: the kilo of roast, a cut of beef of the most expensive, was worth 3,43 pesos at that time.

The result was dire: protests and incidents in front of banks and a crisis that ended with the declaration of Site status and the president escaping from the Casa Rosada by helicopter on December 20 of that year.

What the corralito taught us in Argentina

Like any historical event, the Argentine corralito left several lessons. Today, 20 years after that unfortunate precedent, we can highlight the following:

If the money is not in your possession, it is not yours

Not your keys, not your coins”, It is often said in the bitcoin ecosystem. This means that if you can’t access your private keys, your cryptocurrencies are actually handled by someone else.

The same happens with traditional bank accounts. As it happened in Argentina in 2001, savers are just a government or bank decision away from losing their funds. Any centralized system carries these risks, and that is why bitcoin (BTC) is such an option that is so widely considered in countries with unreliable monetary systems for the population.

The “corralito” was announced on December 2, 2001 by Cavallo and made the headlines of the country’s newspapers. Source: Clarín.com.

Saving in fiat money is a bad idea (even in dollars)

The devaluation of national currencies, once a “privilege” reserved only for developing countries, now affects almost all currencies, even in the first world.

As CriptoNoticias has reported, at least 40% of the dollars that exist were printed in 2020. Similarly, the euro has every time less purchasing power for the inhabitants of various countries in Europe.

It was precisely an inflation problem that led 30 years ago to convertibility in Argentina. We have already described the result: uncontrollable foreign debt and a country that had to turn to people’s money to pay its creditors.

Bitcoin, on the other hand, has a limited issue of 21 million units that is immutable, and that is why it is a deflationary currency. In its years of life, the cryptocurrency created by Satoshi Nakamoto in 2009 has had a remarkable growth in its market value, as can be seen in the graph below.

Bitcoin has been on an uptrend for almost its entire existence. Source: CoinMarketCap.

Beware of centralized monetary systems

National currencies are issued by the Central Bank of each country. In turn, the bank accounts that the population can access are owned by private institutions that, within what the law stipulates, of course, they can make and break at will with the depositors’ money.

Conversely, the decentralized bitcoin system gives power back to the people. Thus, each individual has his own purse where he keeps his savings, the price of the coin is set by the market and no one can take discretionary measures. Changes in the protocol are made through proposals that must be evaluated, tested and validated by the community.

Nevertheless, there are institutions that are equivalent to banks: cryptocurrency exchanges. By depositing money on these platforms, a person is not buying cryptocurrencies directly, but is gaining exposure to them indirectly to generate profits. As has happened recently, an exchange blocking measure can leave anyone without access to your money.

The playpen can happen anywhere

Like inflation, the corralito is not an evil exclusive to South American countries. For instance, Greece lived its own playpen in 2015, when banks were closed for three weeks and cash withdrawals from ATMs were limited to 50 euros per person per day. Too Cyprus had its cash withdrawal limitation in 2013, a measure that lasted 12 days.

On the same side of the Atlantic Ocean as Argentina, in Venezuela, something similar happened in August 2018. On that occasion, it was an even stricter playpen than Argentina’s. According to the newspaper The countryThere were citizens who could only withdraw 0.12 dollars (10 bolivars) from the ATMs in those days.

Bitcoin as an escape door to corralitos

The advantages of bitcoin over a centralized monetary system have been previously developed, in each of the points explained. To these, in addition, others could be added such as international transfers at very low cost or the possibility of traveling with electronic cash, which confirms its interpretation as a universal currency by many.

While it is impossible to say that now that this cryptocurrency exists, a playpen would not be produced, Yes, it can be estimated that fewer would be affected.

Stop relying on government decisions is a basic principle of the bitcoiner community in search of financial freedom. At least so far, there is no corral in the world so large that it can limit the potential that bitcoin has to offer to ordinary people.