Capital controls tighten as Argentina swings to the left

Long-troubled Argentine President Mauricio Macri has been defeated in the country’s latest general election, losing out to left-wing Peronist party candidate Alberto Fernández.

The prospect of defeat looked certain amidst a deepening economic crisis, but will the extreme measures on capital controls put in place immediately after the election by the Central Bank please the voting public?

Central Bank imposes crippling capital controls

As reported by the local press, the Central Bank of Argentina (BCRA) took the immediate decision to limit Argentinians’ access to forex following the election result. A limit on purchasing foreign currency had previously been put in place by a reluctant Macri in an attempt to preserve the reserves of the country’s Central Bank.

The $10,000 limit on forex purchases, which came into effect in September, was highly criticised at the time and was detrimental to many small businesses. However, while this limit was unlikely to affect everyday people all that much, the new limit of just $200 per month will hit the middle class hard.

In a country where many citizens prefer to convert their savings into dollars and in which the national currency, the peso, is experiencing an inflation rate of more than 53%, these capital controls leave people facing the erosion of their wealth.

According to the BCRA, the controls are “temporary”. The Central Bank has enforced them in a bid to prevent capital flight after a win from the left. But it effectively cuts Argentines’ access to forex by a staggering 98%. In such a situation, you have to wonder – will this push more people over to Bitcoin?

The case for Bitcoin in Argentina

In early September, Argentina was seeing a huge Bitcoin premium on peer-to-peer trading platform LocalBitcoins. People were paying as much as $1,000 more in Argentina to convert their pesos into Bitcoin than in neighbouring countries. The election result and shock capital controls measure may see demand for Bitcoin surge once more.

In fact, even before the Central Bank’s announcement, LocalBitcoins in Argentina registered its third-highest trading week to date, with some $15 million Argentine pesos being exchanged. This is perhaps an indication of sentiment that the leftist party would triumph.

Prior to the election result, analyst and trader Alex Krüger commented that Argentina’s citizens should expect the capital controls to extend. He also foresaw that the new government would “take over the central bank, among other things”, adding:

“A Bitcoiner’s dystopian world is shaping up down under.”

With banks closed in Lebanon for seven consecutive days and citizens in Hong Kong unable to access their money, the situation in Argentina repeats an all-too-common and dangerous theme: the power of banks to separate people from their money.

It may be the case that most people don’t know enough about or trust Bitcoin to use it to preserve their savings. But it does highlight the benefits of the cryptocurrency once again and the importance of having control over your own finances.