Paper jam

Argentina scrambles to print 1,000-peso banknotes as 5,000 peso note cancelled.

Argentina’s government is battling to save its currency while the population are running from it. The gap between the official and parallel exchange rates is the widest it has been since 1989 and inflation is running at 40%.

The government has responded by introducing currency controls and printing money. The economics of these measures are discussed in detail elsewhere but interestingly, a major problem with printing money in Argentina is actually printing the money! Argentina’s national mint has been working flat out all year and the country was still forced to begin importing banknotes.

The problems started when, earlier in the year, the government scrapped plans to start printing ARS 5,000 bills for the first time. With such high denomination bills, the printing machines at the Casa de Moneda would have been able to cope, but it would also have hammered home the weakness of the currency and the rate of inflation. An Argentinian economist jokes, “Printing ARS 5,000 notes is not good PR when you are trying to ‘de-dollarise’ the economy.”

“Printing ARS 5,000 notes is not good PR when you are trying to ‘de-dollarise’ the economy.”

Argentinian economist

Initially, it was just raw materials that were being imported, for example, paper from Sweden’s Crane Currency and Russia’s state-owned Goznak. As demand continued to increase the entire production was outsourced, 300 million bills were purchased from Brazil – which is strange given the poor relations between the two countries.

Matters worsened further last week when it emerged that Argentina had ordered 170 million ARS 1,000 notes from the Spanish Mint at USD 0.12 per note. This is the most expensive import of ARS 1,000 bills ever awarded and 37% higher than budgeted. To add insult to injury 30% payment was demanded upfront!

A manager at Casa de Moneda revealed, “Casa de Moneda has some big problems, the machines are old and the supplies don’t arrive because of the high dollar and difficulties importing.” A source in the production department confirmed, “It is a miracle the machines are still working, maintenance do what they can but interruptions are becoming more frequent.”

“Casa de Moneda has some big problems, the machines are old and the supplies don’t arrive because of the high dollar and difficulties importing.”

Manager, Casa de Moneda

A separate source at Casa de Moneda complained, “With the arrival of the new president of Casa de Moneda, Fernando Pereyro, in December 2019 and his subsequent replacement, Roberto Gabrielli, in May 2020, the entire management was left in the hands of La Cámpora*. Neither Pereyro nor Gabrielli have any understanding of the sector, their function is decorative.”

This all paints a pretty grim picture. Currency controls, high inflation and increased money printing are adding to the challenges of the coronavirus pandemic and amplifying pre-existing economic problems.

A sharp devaluation of the currency seems inevitable despite the protestations of the President and Finance Minister.

*La Cámpora, is a political group of the controlling party which controls contracts and tenders. The group was founded and is led by Máximo Kirchner (43), son of Cristina Kirchner. This group, behind the scenes, set prices and manages bids and awards. The Ministry of Economy and the Ministry of Production, which have an administrative and budgetary influence on Casa de Moneda, are controlled by the same political faction.

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