Milley vows to shut down Argentina’s central bank – but will he?
The image of the presidential candidate who destroyed the central bank model with a hammer will not leave the memory of Argentines for long. But once President-elect Javier Mille takes the throne on December 10, will he still have the courage to follow a winding and dangerous path?
Argentina carried – with nine defaults – the title of world champion in the category of endangered. It is currently the International Monetary Fund's largest lender, and with a credit risk rating of CCC by Fitch Ratings – the lowest point in the fourth – it must fundamentally change the economy.
I'm not a fortune teller, but I can give some insight into the process. Let us begin by realizing that a country cannot exist without a central bank. Currently there are 198 countries and 180 currencies. Ten percent of countries do not use their own currency.
Related: Bitcoin-friendly Javier Milei wins Argentina's presidential election
Another important fact is that the IMF unexpectedly does not have “money” in its name. He loves central banks, and as Argentina's main lender, his opinion will be very important in the process.
In a recently released campaign ad, Javier Milei takes on the costume of his superhero counterpart, Captain Ancap, and appears to be destroying Argentina's central bank with Thor's hammer. pic.twitter.com/qw1MxSDpEG
— Crazy Ass Moments in LatAm Politics (@AssLatam) November 19, 2023
We also have an Argentine currency base. According to the county's most recent balance sheet, that figure is $7.7 billion. (That's 220,000 bitcoins (BTC), for those keeping track, and slightly more than MicroStrategy's $6.9 billion worth.) For comparison, the US monetary base is over $5 trillion.
That figure suggests that the challenge of replacing the financial base will be great, but not insurmountable. One of the problems of money exchange is finding paper money for daily activities, but we in the crypto world know that both stable coins and Bitcoin can help a lot in this process.
It would make sense if Miley used the design established in El Salvador. That means it will start accepting US dollars first and then Bitcoin.
A currency generally requires “legal tender” status, which means that all institutions in the country need to accept it. In this regard, Miley could create a major policy shift. If he's really liberal (the archaic word for “liberal”) he might let the market decide which currencies succeed.
Related: History tells us we're in a strong bull market.
Argentinians are known to hold large amounts of dollar savings outside their country. The number is uncertain, but could be in the range of $100 billion to $300 billion. But the most important thing is that according to the new government's new exchange rate law, the money can feel comfortable to return to the country.
Meet the new president of Argentina, Javier Millais.
When he grew up, his children called him “crazy” because of his violent temper.
A football player, Mille quit the sport at the age of 18 to pursue a career in economics.
Miley rose to fame with controversy… pic.twitter.com/fK31aNFb5Q
— Colin Rugg (@CollinRugg) November 20, 2023
Argentina – even under Menem in the 1990s – did not have a fully convertible currency. So the first thing that the incoming government can do is to unify all exchange rates and declare a free exchange rate. If he doesn't, we should start worrying.
As a final observation, it is important to note that the Central Bank and the Treasury are completely different entities. It is possible for a country to function without a central bank, but it is very difficult not to have a treasury that controls its inputs (through taxes) and outputs (through public spending).
Treasuries are also issuers of government bonds. While a country can issue bonds abroad, it does not control the printing of currency. This increases the risk of not having the currency to pay for the bonds. That means that a country's debt capacity is shrinking, forcing it to operate a much lower income and expenditure policy in line with this reality.
In particular, that forces a country to be extremely efficient in its fiscal policy. This result may be largely the origin of Milley's idea.
Alexander Vassarheli is the founding partner of BLP Crypto, responsible for managing cryptocurrency funds. After more than 23 years in the traditional financial sector, he became involved with digital assets in early 2017, working on proprietary trading desks including Banco Endosu, Credit Suisse, Deutsche Asset Management, ING Bank and Banco Pay. He has traded fixed and variable income assets, currencies, options and commodities in domestic and international markets. in Product Engineering from the Escola Politecnica of the University of São Paulo, a graduate degree from Fundação Getulio Vargas (FGV) in Rio de Janeiro, and an MBA from the Brazilian Institute of Capital Markets.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
