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How to Survive in a World of Hyperinflation
Level 1 - NGMI
Welcome Avatar! As mentioned publicly on Twitter we reached out and found a person who has 15+ years living in Argentina. For those unaware, hyperinflation is a rampant problem in the country where prices can rise up to 10% in a single month. One of the things we try to avoid, is talking about things we *don’t* know. This is one we 100% don’t know. Anyone in the USA has no clue (being realistic).
Therefore this guest post is written by someone who has lived with it and knows all the ins and outs. We hope you find it interesting at minimum and at best find some helpful strategies if we enter into even worse inflation in the future.
Surviving (and thriving) on an Inflation Standard in Argentina
“Este país se va a la m****” – Ricardo Darín in Nueve Reinas (Nine Queens)
“This country is going to s***”, is a phrase that you will hear a lot in Argentina, no matter what year in recent history you find yourself in, since it always seems to address the current situation. It was popularized in Nueve Reinas (Nine Queens), a movie that was shot in 2000, right at the height of the last major Argentine currency collapse that ended with another default.
In this article I will address Argentina’s recent economic history in a nutshell, dive into how people deal with a constant state of ultrahigh inflation and why living off WiFi income in Argentina is a pretty good deal.
Some Background: the good old days
Argentina used to be one of the richest countries in the world at the start of the 1900s (top 10 in terms of GDP per capita in 1900-1910). The country had an open market economy and at the time for emigrants leaving Europe it was the next “promised land” right after the US. I can recommend reading the economic history of Argentina for anyone interested, it really is a unique story.
Without going to deep into the rabbit hole of what changed or who was to blame for things going south in Argentina, it is safe to say that populism did its job and politicians started funding their deficits with money printer go brrr from the 30’s onwards. Throughout its entire history, Argentina has removed 13 zeros from its national currency and defaulted on its sovereign debt 9 times (probably a world record).
The last big crash in 2001 happened after a relatively stable period of 10 years with almost zero inflation and the ARS being pegged 1:1 with the dollar. In 2001 the peg broke and anyone with pesos got rug pulled with a 1:3 haircut – still better than Do Kwan’s peg, but nonetheless one of the main reasons people in Argentina do not trust banks and prefer to save in cash US token.
Welcome to Inflation, Jungle
From 2002 onwards, inflation has been constant, accelerating in recent years. For example, with last month’s inflation data, Argentina’s inflation has already accumulated 14,000% since breaking the US token peg.
The current 85%+ YoY inflation rate is a game of survival, and especially for the lower / middle class this takes its toll in terms of obliterating savings and not being able to get by. The official inflation rate is lower at 65%+ but is a similar scam to US CPI (just measuring different items to cook the books) – a lot of items are already close to or over 100% YoY, like coffee (117%), tomatoes (126%) and eggs (97%).
Triple digit inflation is almost guaranteed either for this year or next year.
Maintaining purchasing power in Argentina
If you think 8% inflation in the US and Europe (probably closer to 20-30%) is hard, 85%-120% in Argentina is God mode. Besides converting every peso to US token as quickly as possible and stockpiling up on non-perishables, there are some additional options out there.
Installments: Kicking the can down the road is a way of life
Buying now and paying later is another way people try to gain inflation. Most businesses offer 0% interest on 3 installments (subsidized by the Central Bank money printer), which is a great option to spread out devaluating peso payments over time, making them cheaper in harder currencies as time goes by.
Up until a few years ago, many products could be bought in 12 installments with 0% interest. It’s insane how insignificant those last few payments usually were when measured in US tokens when you got to month 10-12. If people suspect a big devaluation coming up, they tend to make big purchases in installments maxing out their credit cards.
Ponzi CeFi rates for $ARS
One way to lure people into saving in local currency is the high return on $ARS when staked for at least 30 days at a local bank: currently at 53% YoY.
The harvested pesos get deposited into the same account at the end of the period. Looks good when compared to negative interest rates, but a clown rate at +/-85% YoY inflation – you still lose around 30% of your purchasing power.
There are also multiple examples of a 30-day period when the peso suddenly dropped 30% or more against US token. Therefore, the general rule of thumb for Argentines is to think and save in US token.
The Mattress Stuffed with US Token
Since it is a better store of value than perpetually devaluating pesos, homes and luxury items like imported cars are all priced in dollars. Just to get a sense of how dollarized Argentina is: an estimated one in every five dollar bills in existence outside of the United States are located in Argentina, representing about half of Argentina’s annual GDP and 5x the local Central Bank reserves.
To prevent Argentines from quickly converting all their pesos at the start of each month, the Argentine government has placed strict rules on buying foreign currency, with a cap of $200 US token per month (!) per person. It’s more than you can withdraw from Celsius, but still not much if your local currency is quickly evaporating.
The official USD/ARS exchange rate atm is around $123 per dollar, but just like inflation numbers, this rate artificially low. No one in his right mind would give you $1 dollar for $123 pesos in the real world (unless of course you are forced to transact on the legacy banking system, which has a cap of $200 as we saw above).
The real market rate is closer to $216 ARS per dollar (a 68% difference with the official rate), also called the blue dollar (dólar blue). This is the rate most people use to convert their pesos to dollars or to occasionally convert back to $ARS whenever they need day to day cash.
Many Argentines have a US or EU bank account, but how do they get money in or out of the country with super tight capital controls and how can they convert more than just the $200 of their income into US token? This is where the cuevas, or “caves”, come in.
Cuevas: opting out of pesos with DoorCash
The only way to get access to the dollar blue is through cuevas: local money managers that do nothing all day but earn a sweet spread + an additional 2-4% on the final converted amount. Locals withdraw whatever chunk of pesos they can save after living expenses from their bank account and exchange it at the blue rate for physical US token.
If people need additional money wired to Argentina or send their savings to an offshore account, these cuevas are the Tinder app of black-market finance. For example, if you want to get money into the country, they match the order with someone who needs cash outside, you send it from your offshore account to that third party US account, and the cueva gives you cash, and vice versa.
Of course, this token matching is a lot harder than just sending stables or BTC to the cueva directly, because cuevas can’t always find a counter party on the same day for the amount you need. Luckily since 2018 many also accept stables and Bitcoin, which makes it exponentially easier to get money in and out of the country without using ANY legacy banking.
Another great feature of these knights of the free market is that once you know them personally, you can just text them, send stables or BTC and a delivery dude will show up on your doorstep handing you a brick of pesos or US token bills, whichever you ordered (usually within 1-2 hours).
Income survival options
If you’re not already part of the richest 5%, this type of inflation will eat most people’s purchasing power alive. Locals are usually faced with 3 options to generate income / survive:
1. Leave the country - This is a very popular option if available . A lot of Argentines qualify for this option given the fact that many have a second Italian, Spanish or another European passport (more than 50% of the population can make an ancestry claim in a European country or already has a second passport). Still, it is a big step leaving everything behind.
2. Local salary/start a local company - NGMI unless your company has offshore funding or you’re working for a big multinational. Even then, local pay and invoicing is still not great, and competition is fierce. I don’t include Expat jobs in here because those are usually exclusively reserved for foreigners. Luckily, we live in an online world where you can stay put and earn in a slightly better currency. This brings us to option
3. Stay in Argentina and set up a Wifi income stream – Start up an online company, do freelance gigs, anything that pays in US token or Bitcoin. This last option is increasingly the choice for English speaking programmers and marketing people (some that only speak Spanish also work for Mexico, Spain or Colombia). I know many locals (and expats) that work online, get paid in Bitcoin or through Deel, and send the money to an offshore account. Whenever they need money for living expenses, you guessed it: cueva’s DoorCash.
After having tried all 3 options since moving here in 2005 from Europe, I can confirm that having an online business while staying put in Argentina is the absolute winner.
Quality of life on a Wifi Income Stream
Buenos Aires is a great city if you have a WiFi income stream of about 2-5k a month, and quality of life in that case is very high. Private healthcare is great and affordable, and food & travel in the country is awesome. Just look at the average insect-free barbecue and you’ll get my point:
A full tank for $30 and $900-$1.5k US token for a furnished apartment (see some examples here) with nightlife and good restaurants nearby definitely beats living in a closet in a Tier 1 city in Europe or the States.
Moving to Argentina for a while is easy and there are different visa options available: 1) Tourist visa (easiest, 90 days, renewable for another 90 days), 2) Passive income visa (make at least $1,500/month and route this into a local account) renews every year for 3 years, after that it’s permanent residency.
BTB Notes: This is by far the most entertaining guest post we’ve ever paid for. Worth every satoshi. If anyone is feeling bad about the problems they are facing now, it appears that even if you make $3K online, you can live a solid life in Argentina. Anyone upset about asset prices declining should give this a read at least 5-6 times. Entertaining and educational.
Guest Post Bio of BowTiedMara
About my focus in the BowTied community: I’m currently developing a platform for mobility assets (investment visas / passive income stream visas, digital nomad visas and more) for each country in the world (where available) and am planning to tie those to local immigration attorneys everywhere so people can connect and see their options for moving to another country for a longer term than just a tourist visa.
The Sovereign Individual thesis (countries competing to attract capital and talent) is already playing out and online income streams are only accelerating that. My goal is to create the mobility hub for anyone that wants to move, without being the middleman (just a lead gen for attorneys etc). I’ve worked in the mobility asset industry for the past 6 years (Residency and Citizenship by Investment) and want to provide a direct option for people without middlemen skimming off a percentage – agents take a pretty big chunk out of those investments and many programs can be done directly with an immigration attorney or even by applying directly on your own.
Plus, in a lot of cases if you only want to move for 1-2 years, you don’t even need to make an investment since it can be pretty much for free in a wide range of countries if you can prove passive/stable income streams.
This was a guest post by BowTied Mara. That said below is a disclaimer that we paid for this post. Along with our standard disclaimer that none of this is financial or legal advice.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol and on the JPEG team.