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Argentina: Cash and Inflation

Categories : Cash and Crises, Cash is available to all users, Cash is the most widely used payment instrument
February 22, 2023
Tags : Acceptance of cash, Argentina, Banknotes, Digital payments, Financial inclusion
In Argentina, inflation has exceeded 30% every year since 2018. Cash in the hands of the public has increased rapidly since late 2019.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Spending Cash as Fast as Possible

With inflation reaching 100%, consumers spend their Argentine pesos (ARS) as quickly as possible, purchasing home appliances in instalments (betting the peso’s value will keep falling) and hardly using credit.

Cash in Circulation and ATM Withdrawals

Cash in the hands of the public has increased rapidly since late 2019, according to the Central Bank of the Argentinean Republic (BCRA) figures. At the onset of the Covid-19 pandemic, banknotes and coins in the hands of the public spiked sensibly. They have continued rising since (see Graph 1).

Graph 1. Argentina: Cash in the Hands of the Public, 2017-2022 (ARS trillions)

Source: BCRA Variables (2023).

ATM withdrawals increased between 2017 and 2021, with seasonal spikes each year in December (see Graph 2). The value of ATM withdrawals has increased sensibly in the same period, owing to the rising cost of living and the decreasing purchasing power of cash.

Graph 2. Argentina: ATM Withdrawals, 2017-2022 (Millions of transactions, ARS billions)

Source: BCRA Retail Payments Report (December 2022).

Payments Mix and Financial Inclusion

In 2021, cash was the most used payment instrument in point-of-sale transactions in Argentina (with 33.8%), followed by debit cards (23.8%) and credit cards (23.5%), according to FIS Global Payments Reports.

According to the World Bank’s Global Financial Inclusion Database, in 2021

Cash Denominations and Inflation

The BCRA launched the ARS1,000 banknote in 2017. That banknote with the highest denomination is now worth just USD2.70 in the black market. While the BCRA last launched new banknotes in 2016, the Argentine government announced it would issue new banknotes in 2021. The central bank has retired banknotes with small-value denominations to prioritize printing banknotes with higher-value denominations.

The ARS1,000 banknotes have become the most used in the country. By volume, ARS1,000 banknotes surpassed ARS100 notes in circulation in October 2022 (see Graph 3). Early in February 2023, the BCRA announced it would issue a new ARS2,000 banknote with an official value of USD11.

Graph 3. Argentina: Banknotes in Circulation by Denomination, 2016-2022 (Millions)

Source: Bloomberg Línea (2022).

By percentage, ARS1,000 banknotes represent 30.7% of all banknotes circulating in Argentina; ARS100 banknotes reached 29.7%, and ARS500 banknotes represent 17.9% (see Graph 4).

Graph 4. Argentina: Banknotes in Circulation by Denomination, October 2022 (Percentages)

Source: Bloomberg Línea (2022).

The Pro-Digital Payments Lobby

“Digitalizing cash is very positive because it allows people to enter the formal financial system. It is the door to financial inclusion and the first step to increase the use of financial services such as cards, investments and loans.” – Martin Bellocq, Chief Marketing Officer of Ualá.

The Argentine government promoted digital payments during the Covid-19 pandemic, arguing they provided “a better control of expenses, are safer and more convenient, and a credit history that makes it easier to get credit from banking and financial entities.”

The Association of Argentinean Banks (ADEBA) has implemented a strategy to substitute cash with digital money (Iniciativa Dinero Digital en Argentina). ADEBA argues that cash comes with increased printing, management and logistics costs.

“The creation, transfer, utilization, processing, sorting, storage and destruction of paper money has a high economic cost for society. In addition, this generates insecurity due to theft from individuals and companies with the aim of taking the banknotes, which have little traceability. The intensive use of cash is detrimental to financial inclusion, as it does not allow its users to users to generate a ‘credit and financial history’ and does not increase the lending capacity of the financial system. Finally, it has been demonstrated that the use of physical money has a relevant ‘carbon footprint’. All these costs are substantially lower when it comes to digital money.” – ADEBA (2022: 3)

ADEBA argues that digital payments could increase fiscal revenues and enlarge the formal economy in Argentina if the government limits cash transactions and forces consumers to pay with debit cards.

Dollarization and Barter

Argentina is heavily dollarized. Middle-class and wealthy Argentines use U.S. dollars to pay for big purchases (land, houses, cars, artworks) and keep their savings in dollars, hidden inside their homes or in safe deposit boxes.

While the government restricts citizens from buying more than $200 in U.S. currency monthly, the black market thrives, moving $3-$4 million daily.

Foreign tourists visiting Argentina avoid paying with cards, as the official dollar exchange rate used for card transactions is much lower than the “blue dollarchange rate prevailing in the black market.

Working-class Argentines rely on “trueque” clubs (bartering exchanges) to swap goods without using money. Participants use “créditos” (credit tickets), currencies issued by the clubs.

This post is also available in: Spanish