Argentina’s central bank had formally banned consumers from purchasing Bitcoin (BTC) and other cryptocurrency using credit cards on Nov. 1. What followed was the very opposite of what the Argentine government had anticipated — over the past two weeks, the country has traded the highest amount of Bitcoins on the peer-to-peer platform LocalBitcoins, according to data by CoinDance.

Argentina’s fragile economy

One of the biggest factors in the high adoption of crypto in the country is the high volatility of the Argentine peso. In just the past five years, the value of the peso against the United States dollar has fallen by over 85%. The residents of the country have traditionally had little confidence in their currency, favoring to convert their spare pesos into relatively stable dollars.

The country’s sovereign currency is the peso, which people earn and spend, but it’s the U.S. dollar that defines the value of goods and services. The peso–dollar exchange rate is quoted daily by the media, alongside weather and traffic reports.

Looking at the economic situation of Argentina, crypto bull Tim Draper advised the president of Argentina in March 2019 to legalize Bitcoin in order to improve the country’s economic situation. He counseled the president on crypto’s potential to improve the devaluation of the Argentine peso and relieve the associated brain drain.

Daniel Popa, CEO of the Anchor stablecoin, told Cointelegraph that despite the volatility of crypto, Argentinians trust it more as a store of value than the peso because Bitcoin cannot be manipulated by the government, adding that:

“Unfortunately, bitcoin does not offer predictability, underlining the ongoing need for a universally-accepted stablecoin and financial standard that could be adopted by anyone in the world, including those suffering from the negative economic impacts that stem from war, natural disasters, health crises, and disruptive monetary policies.”

Crackdown on forex

To give some historical context, in the 1990s, the peso was pegged to the dollar by the government of President Carlos Menem in an attempt to stifle inflation. The dollar peg damaged exports, pushing the state to take on more debt to remain afloat amid a worsening economic crisis. The peg was lifted in 2002. However, the dollar had already been ingrained in Argentine culture.

On Sept. 1, the Central Bank of Argentina had imposed restrictions on U.S. dollar purchases to revive the plunging peso. Citizens’ purchases made in dollars were limited to $10,000 a month, requiring special permissions beyond that limit. The bank also said it would restrict dollar purchases to $200 per month via bank account and just $100 per month in cash, until December.

Talking to Cointelegraph about the government’s crackdown on forex, Salomon Ptit Haddad, the head of institutional sales at Enigma Securities, said, “Given the current degree of uncertainty, the BCRA board of directors decided to take a series of measures that seek to preserve the reserves of the Central Bank.” Haddad went on to add:

“The Argentine Central Bank can easily impose restrictive measures on the use of bank cards, with local banks having to comply with the guidelines imposed by the country’s central bank. Argentina, which has a $50 billion debt to the IMF and is trying to get out of the economic problems it is facing.”

Ban on crypto purchase with credit card

Keeping up with the trend to increase the adoption of peso, the Central Bank of Argentina announced on Oct. 31 that citizens are prohibited from using credit cards to buy cryptocurrencies. Haddad believes that this regulatory policy is aimed at protecting the national currency at the cost of crypto, since Argentine citizens tend to exchange crypto back into the dollar either offshore or in the country.

He also added that since November this year, the BCA has mandated all card issuers to be registered prior to distributing new cards, “This has generated great uncertainty within the South American country, where it is customary to have cash and dispense with banking systems.” Haddad went on to add:

“Now, after this measure, the cryptocurrencies can be a way to preserve assets for those who want to save, bearing in mind that the origin of people looking for a stronger asset is the devaluation of the local currency, which has been devalued by 50% so far this year.”

We have seen it time and again in countries like India and China, where crypto trading volumes surge upward following a ban. Talking about how this move led to an increased interest in crypto, the co-founder and chief operations officer at ShapeShift exchange, who simply goes by “Jon,” said:

“Capital controls seem to have a direct correlation with getting people more interested in Bitcoin because it’s something the government can’t control. The population of the country sees these capital controls are put in place and then they’re going to look for a way around it. That’s where Bitcoin and crypto come in, as they give a good way to store and transfer values when they’re dealing with this type of uncertainty.”

Institutional help in adoption

Argentina’s deputy minister of finance, Felix Martin Soto, claimed in March this year that the government should approach crypto and blockchain tech as a way to improve Argentina’s financial inclusion and reduce state costs.

He had also asserted that promoting the crypto industry in the nation will serve to reduce its demand for dollars, which will ultimately commit to preserving the local market and attracting global investment.

Soto is not the only one who is pro-crypto. Upon being elected in 2015, President Mauricio Macri was perceived to be good news for the legal status of Bitcoin in the country. He was the one to sponsor the First Bitcoin Forum in Buenos Aires in July 2015. Although, his enthusiasm for cryptos didn’t seem to last for too long. Jon gave two reasons as to why the president slowed his fondness toward crypto:

“1) It’s hard to focus on Bitcoin regulation while trying to keep the government stable and national currency inflation down so people can afford to live; and 2) he’s probably running into bureaucratic pushback for various reasons.”

Apart from the forum, there have been other initiatives by organizations to spread crypto awareness. For example, nonprofit organizations Bitcoin Argentina and Bitcoin Americana launched an informational campaign called “Bitcoineta.” It consisted of a Bitcoin-branded van, jointly purchased by the two organizations, that went around Argentina to spread basic knowledge about cryptocurrencies among local communities.

A need for regulation, not restriction

2018’s edition of G-20, which was coincidently held in Argentina, mentioned crypto regulation. The officials stated their concerns regarding the crypto industry as well as their overall agenda for both the future and infrastructure development of the participating nations.

The conclusion of the summit saw a declaration titled, “Building Consensus for Fair and Sustainable Development,” which regards cryptocurrencies as an important part of an “open and resilient financial system” that “is crucial to support sustainable growth.”

The document also highlights the necessities of Anti-Money Laundering and anti-terrorist measures as per the standards of the Financial Action Task Force, providing clear instructions to participating nations on crypto regulation.

Related: FATF AML Regulation: Can the Crypto Industry Adapt to the Travel Rule?

However, Argentina itself didn’t make much of an effort to regulate digital assets. The Argentine government has not implemented specific regulations on exchange, issuance or — in general — the use of digital assets. Regarding the Argentine government’s failure to take swift action on the regulatory front, Shapeshift’s Jon said:

“It’s hard to fully know why that didn’t happen, but my best guess is that the crypto regulation discussion got caught up in bureaucratic priorities. Unless the government, any government, really makes something a priority, other things just take precedence. I doubt there’s specific intent around not regulating crypto, rather it’s something they’ve just not gotten to yet.”

Argentina is the textbook example of how Bitcoin and other cryptocurrencies can find a use as a store of value, especially in economically vulnerable nations. If the government is serious about reducing their dependence on the U.S. dollar, it is becoming more apparent that they should embrace and understand crypto. Early adoption of digital currencies could help the country come out of its financial downturn.