Argentina’s economy has been struggling for decades, but recently it has reached another level of instability. In February, inflation rose by more than 100% year-on-year for the first time since 1991. Prices rose almost 7% month-on-month.
The Argentine peso is so unstable that people are either quick to spend their money or exchange it for US dollars, Vox’s Emily Stewart wrote in a recent article. The Argentine government limits how many US dollars people can buy, so they pay double the rate for the “blue” dollar on the black market. Argentines living with this economic chaos have learned to distrust financial institutions like banks and currencies.
“The thing about trust in institutions is that once it’s lost, it’s hard to regain,” wrote Stewart, who recently spent some time in Argentina. She told Marketplace host Reema Khrais that “confidence and trust are really what underpin our financial system.” The following is an edited transcript of their conversation.
Reema Khrais: So I’m fascinated by what’s going on in Argentina. You lived there for several years. I know you were there recently. So I would like to start with some of your general observations about how people in the country are coping in the day-to-day economy.
Emily Stewart: So, I mean, for people unfamiliar, a persistent problem with Argentina’s economy — at least for the last few decades — is extremely high inflation. To put this in perspective, their annual inflation rate just hit 100%. Ours is 6%. So it’s very high. So this basically means you have to be pretty smart to survive in the economy there because your money is obviously depreciating all the time. And that looks like a lot of things. You know, most people keep their money at home when they can [U.S.] Dollars instead of pesos as far as they can save. To put it bluntly, many people cannot save. The government makes it really difficult to get dollars. So most people end up on the black market, which they somewhat counterintuitively call the “blue” dollar. So, to put that in a few numbers, yes, the official exchange rate is about 200 pesos to 1 dollar. The real exchange rate – the blue dollar rate – is approaching 400. So it’s really about twice that.
Khrais: Right, you write in the article, you make that point, which is that things can get pretty weird pretty quickly if you can’t trust the bank, the currency, or anyone in charge. What are some of those weird things you’ve observed?
Steward: I mean, it’s just a situation where people have really big money. You know, I was there the other day, a friend of mine sold his mom’s house for over $100,000. This deal was all in cash. And he and his brother put part of the money in the bank. And now the plan is to take it out. They put the money in to make sure the dollars were real. And they’re just kind of big and small, you know that kind of changes the way you have to live. People pay for things on a lot of installment plans, right? There you often get discounts in cash. And there’s kind of an understanding that it’s because no one pays taxes, right, you know, they all have different exchange rates. There are always protests there. And that’s partly because unions and workers are constantly pushing for higher wages. It’s really a wage-price spiral situation, isn’t it? Prices keep going up, people’s wages need to go up, and their wages just aren’t keeping up.
Khrais: Yes, it’s interesting. And then it feels like you’re operating that way and pointing out in the article that you can’t really think about the future. You’re not saving, you’re in here…you’re in the present forever.
Steward: To the right. You know, that’s what a historian I spoke to said to me, “You know, you can’t save, you can’t really think about the future.” And you know, living there, there were moments , where the government said, “It’s time to invest your money in pesos, it’s time to invest your money in pesos.” And, you know, I think a lot about what if you did it back then and now your money would be worth so much less? To put this in context, when I moved to Argentina in 2008, the exchange rate was 3 to 1. That was 15 years ago, but that’s only 15 years, right? Like, that’s a huge amount of devaluation. And so I think sometimes in the US and in other countries, we don’t think about what it’s really like not being able to trust that when you put your money in the bank, it’s going to be there.
Khrais: Well, that leads to my next question. So we’re obviously not saying that what’s going on in Argentina can be compared to what’s going on here. But what are the bigger takeaways? How can we use this case to reflect on our own economy?
Steward: I mean, as you said, of course we can’t make a 1-to-1 comparison. But I think it’s really important to remember that trust and confidence really support our financial system. You know, we can debate whether it was a good idea for the federal government to bail out some of these banks that were in trouble, or whether it was a bailout, or whether it was a good idea for them [Federal Reserve] to lend money to banks etc. etc. But at the same time I think you have to play out the counterpoint: “What happens if people really can’t trust their deposits to be there?” For example, let’s live in a world where people hide tens of thousands of dollars in their homes and in their mattresses? I think the answer is no. We want to be able to trust our institutions and our banks, and it is important to think about that.
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