As we can see, there are plenty of monetary experiments, and nothing prevents us from devising and promoting new models. In this sense, when I was at the World Economic Forum in Davos, I had the opportunity to speak with Kristalina Georgieva[104], Managing Director of the International Monetary Fund (IMF), about the use of cryptocurrencies, specifically stablecoins, which are pegged to another currency, such as the dollar. My question for Kristalina was framed around two pillars. Firstly, my two university theses; the first one, for my degree in International Relations, was about the use and regulation of Bitcoin in the context of the international financial and monetary system; the second, for my Master’s in Cyber Defense and Cybersecurity, was about the uses of cryptocurrencies in complex crimes, such as money laundering, capital flight, international terrorism financing, and ransomware attacks on critical national infrastructure. Secondly, I felt compelled to inquire about the most recent agreement between Argentina and the IMF, which was approved by the Chamber of Deputies in March 2022[105]. With that in mind and some understanding of the local context, I approached her.
My question was straight to the point. As an Argentine, living with high inflation recurrently since I can remember, aren’t stablecoins, like DAI, USDC, or Tether, a good instrument to escape local inflation? And in that case, why should we discourage their use as stated in the latest agreement between this organization and Argentina? Is the priority to protect people’s purchasing power or the use of a particular currency? “Currency,” which according to the classic definition provided by the panel she participated in, along with François Villeroy de Galhau, governor of the Bank of France, is not such, as it does not retain its purchasing power over time, thus failing as a store of value. As a result, various industries, such as real estate, set their prices in foreign currency, also failing as a unit of account. In fact, its widespread use as a medium of exchange, the third characteristic of money according to that definition, occurs by state imposition, not by people’s voluntary choice. Is that definition correct? I don’t know, but the Argentine peso clearly does not meet at least two of those three characteristics. For me, as Bernard Lietaer argues, money is a social contract and therefore can change. However, what I mentioned before is not really a definition but a statement of non-natural properties imposed on a human creation like money.
To my surprise, Kristalina replied that neither she nor the Fund have issues with stablecoins that have real backing and are subject to regular investigations by the U.S. Securities and Exchange Commission, and I think that’s a definition that should not go unnoticed. Obviously, they don’t like the idea of a country, like El Salvador, adopting Bitcoin or other volatile cryptocurrencies as legal tender, but knowing this about stablecoins sets some sort of precedent regarding where we are heading. In fact, with the Salvadoran case, there is a legal loophole that no one wants to address, but according to the U.S. Commercial Code, the definition of money is something that:
(…) means a medium of exchange currently authorized or adopted by a national or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries.[106]
According to this definition, Bitcoin is inevitably money, or at least a form of it. I increasingly know more and more young people who, as soon as they receive their salary in Argentina, go to an online exchange and convert their entire salary into a stablecoin pegged to the dollar, such as DAI, USDC, or Tether, which tend to be worth one dollar per unit. These young people do this not out of love for technology or hatred for their country but as a way to protect themselves from rampant inflation. The dollar also experiences inflation, as does the Euro and almost all currencies, but their exposure to this scourge is less than that faced by the Argentine peso.
High global inflation is one of the greatest failures of modern history, alongside inaction on climate change, migration crises, and the persistence of various armed conflicts. The uncontrolled printing of dollars by the U.S. Federal Reserve impacts both locally and globally due to the widespread use of this currency. Global debt already exceeds 350% of global GDP[107]. Is that normal? Who will pay this debt? The younger generations who were not responsible for it? The world had already forgotten about this monetary virus, and today no one wants to pay the price for the broken plates. Either they suck up the dollars[108] and the euros[109] that were so lightly poured into the market during the pandemic, possibly causing a recession, or we live with more inflation. If you read this and are from Argentina, I don’t need to tell you that inflation hits the hardest on those who have the least. Moreover, it increases the costs of refinancing debt, whether public or private. On the other hand, if one faces an old debt with ordered accounts today, they find themselves with positive financing by being able to pay interest rates below the current market inflation.
[104] Della Vecchia, F. (2022). Qué tiene en la cabeza Facundo Cajén, el argentino que debatió con Kristalina Georgieva sobre criptomonedas. Forbesargentina.com. Viewed June 21, 2022, at https://www.forbesargentina.com/money/que-tiene-cabeza-facundo-cajen-argentino-debatio-kristalina-georgieva-sobre-criptomonedas-n17320.
[105] Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding between the Republic of Argentina and the International Monetary Fund. (2022). Viewed March 5, 2022, at https://www.hcdn.gob.ar/institucional/infGestion/balances-gestion/archivos/0001-PE-2022.pdf.
[106] § 1-201. General Definitions. LII / Legal Information Institute. Viewed September 22, 2021, at https://www.law.cornell.edu/ucc/1/1-2011.
[107] Pettis, M. (2022). How Does Excessive Debt Hurt an Economy? Carnegie Endowment for International Peace. Viewed March 1, 2022, at https://carnegieendowment.org/chinafinancialmarkets/86397.
[108] M1. Federal Reserve Economic Data. (2022). Viewed June 17, 2022, at https://fred.stlouisfed.org/series/M1SL.
[109] Bank, E. (2022). Eurosystem balance sheet. European Central Bank. Viewed June 18, 2022, at https://www.ecb.europa.eu/pub/annual/balance/html/index.en.html.