Crypto adoption spreads in Argentina even as central bank tightens rules

On a crowded pedestrian street in central Buenos Aires, black market money changers have new competition. Brightly coloured posters advertising online cryptocurrency exchanges stand alongside the traditional cuevas, or “caves”, dingy unmarked bureaux de change that convert pesos and dollars at up to twice the official rate.

Argentina is ripe for cryptocurrency disruption. Decades of distrust in the banking system, high inflation, and strict limits on how many pesos can be converted into more stable currencies like the dollar have increasingly pushed savers towards cryptocurrencies.

Younger generations in particular see it as a way to shore up their savings, as annual inflation soars past 55 per cent and levels of government intervention in the economy climb. Last year Argentina recorded the 10th highest rate of cryptocurrency adoption anywhere in the world and one of the highest in the Americas, according to the Chainanalysis index.

But even as more people sign up, the country’s central bank is tapping the brakes out of concerns linked to a $44bn IMF debt restructuring deal signed in March.

Starting this month financial institutions in Argentina can no longer offer cryptocurrency related services, like buying and selling crypto through their digital wallets and mobile banking apps or setting up a crypto exchange. The decision came just days after Argentina’s largest private bank, Banco Galicia, and online bank Brubank announced plans to open up to digital assets by allowing users to buy different digital coins through their investment app.

Central bank officials said the move was intended to mitigate the risks crypto poses to users and “to the financial system as a whole,” citing concerns about volatility and money laundering.

Sources close to the decision told the FT that rather than a broader crackdown on digital assets, the move is meant to appease the IMF ahead of a quarterly review of its $44bn debt programme that began this week.

Under the terms of the IMF deal, Washington and Buenos Aires agreed that Argentina would “discourage the use of cryptocurrencies with a view to preventing money laundering, informality and disintermediation”.

Additional IMF funds issued to Argentina to boost the central bank’s reserves and meet upcoming debt payments are subject to quarterly reviews by the fund. With targets to bring down inflation and narrow the deficit appearing exceptionally hard to meet against the backdrop of the war in Ukraine, the crypto clause, say sources, could be one way to show the organisation Argentina is doing what it can to comply with other conditions.

Despite the central bank’s caution, there are signs crypto is taking hold. Mauro Liberman, 39, runs a crypto café in the capital’s business district. CrypStation in Puerto Madero offers free advice on how digital currencies work as well as accepting payments in 30 different virtual coins.

“It’s being used day to day as a form of exchange,” Liberman said, the café’s Athena Bitcoin ATM positioned behind him. “Before it [crypto] was seen almost exclusively as a way to invest.”

Countries in Latin America have been some of the most enthusiastic adopters of crypto. El Salvador became the first nation in the world to make bitcoin legal tender in September though it had a rocky start when the government wallet developed technical problems. Public adoption has been limited.

El Salvador has since spent tens of millions of public dollars buying the cryptocurrency — and losing money, raising concerns about how the huge volatility of these digital coins might affect a country’s finances. Bitcoin, the world’s biggest digital asset, sank to its lowest level last week since late 2020 and Tether, a popular stablecoin, failed at times to maintain its link with the US dollar.

In Argentina at least seven different crypto exchanges where people can buy bitcoin are listed in the country. One of the most popular, Lemon, surpassed 1mn users in April after the company launched a Visa debit card that allows payments in pesos or crypto. Some businesses have started paying a proportion of salaries in stablecoins, the value of which is pegged to another currency or commodity like gold.

Santiago Siri, founder of digital coin UBI and one of Argentina’s earliest crypto enthusiasts, said that the adverse economic conditions have led to a “massive” rate of adoption like never before.

“Walking around Buenos Aires it’s as if we’ve accidentally travelled to 2034, even the builders and taxi drivers are saving in crypto,” said Siri, whose business is backed by Marcos Galperin founder of ​​MercadoLibre, Latin America’s answer to Amazon.

At the same time, technologies being developed by Argentines who are used to past bouts of hyperinflation, sovereign debt defaults and currency devaluations are making it more accessible, he said.

Exchanges like Lemon are exempt from the new central bank rules. They work as payment processors and are subject to different regulations so the ability to pay and trade in cryptocurrency is not affected. In Latin America, central and south Asia and Africa, more than 80 per cent of cryptocurrencies by value sent to these regions move through exchanges.

The recent central bank crackdown will ultimately do little to slow the circulation of crypto on exchanges, said Andrés Engler, a crypto specialist at CoinDesk based in Buenos Aires. “This was a signal to the banks . . . but exchanges don’t fall under the new guidelines, so the whole cryptocurrency ecosystem continues.”