The national currency of Argentina (the Peso) has collapsed, and central banks have been forced to hike rates 60% in an effort to stabilize the economy, the highest overnight rates in the world. So far this year, the Peso is down 50% against the US Dollar. In an attempt to stem the ongoing national currency crisis, Argentina has introduced austerity measures, but this news did not stop the decline of the Peso.
A potential collapse in Argentina
Investors are becoming concerned that Argentina could soon default on its debt. It requested an early release of an IMF loan of USD 50 Billion and the Peso capitulated when the news was released. Inflation in Argentina is up a huge 30% from July 2017 to July 2018, though the central banks have put their best policies in place to keep inflation down. Despite the world’s highest interest rates and IMF support, the Argentinian economy is likely to contract this year. According to Deutsche Bank’s Jim Reid –
“It is now unclear if that will be enough to stabilize the government’s finances amid (a) persistent reserve drain…Real rates are not tight enough to encourage capital inflows (so) the economy is likely to contract this year.”
More collapses on the way, along with crypto adoption
Argentina may be no stranger to financial crises, but this one seems more severe and is taking place in the midst of a volatile economic climate across the globe. The South African Rand and Indonesian Rupiah also hit fresh lows due to the news. The Turkish Lira is also at record lows against the US Dollar, in part because of sanctions. Erdogan has also pressured central banks to keep interest rates down. Venezuela has completely collapsed with hyperinflation running rampant in the country.
There is little argument that there seems to be ongoing national currency crises, and that we have not seen a systemic collapse since the 2008 financial crash. Venezuela has already capitulated with 40,000% inflation. Turkey and Argentina are next in line. Though there are many issues associated with an economic collapse, they all largely stem from the centralization of the national currency.
As the Federal Reserve raises interest rates, it makes it more difficult for emerging markets to pay off their dollar-denominated debts, and they are often the first to feel the pinch in economic collapses. People are realizing this, and bitcoin trading is at all-time highs in Venezuela and a massive 18% of Turkish residents owning cryptocurrency.
People now have a choice between banks/states or cryptocurrency, for the first time in history. The nation-state, with its ties to centralized fiat services, is slowly unraveling as people make the transition to decentralized currencies, pushed along by financial crises caused by centralized money.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.