Argentina, which is still experiencing a period of economic turmoil, may be about to face a new threat: monetary fragmentation.
Last week, the re-elected Peronist government of the province of Buenos Aires, dissatisfied with the fiscal adjustment plan announced by the government of the country's new president, Javier Milei, expressed its intention to issue its own currencies, claiming that it needs resources to finance its spending and social programs.
Buenos Aires is the most populous and industrialized province in Argentina. Since 2019, it has been governed by Peronist Axel Kicillof, who was already Minister of Economy during Cristina Kirchner's government (2007-2015) and has opposed Milei since the presidential campaign. The Minister of Government of Buenos Aires, Carlos Bianco, stated in an interview last week that the “national and provincial Constitution allows the province to issue its own currency”, and that this is a tool that can be “used by the provincial government if necessary.”
Bianco said that the issuance of its own currency “is not being planned at the moment”, but that it will be “evaluated” if the province faces liquidity or credit difficulties, given the cuts in federal funds and programs announced by Milei. The minister criticized the adjustment that he classified as “orthodox” by the new Argentine government, which included a strong devaluation of the peso, an increase in public tariffs and a reduction in public and social spending. According to him, these measures “harm the national industry and the Argentine people”.
Bianco defended the social programs created by the provincial government and said that it is “necessary to have the necessary resources to continue making the changes that the people of Buenos Aires asked for at the polls”.
Eduardo Jacobs, master in Philosophy of Economics from the University of Cambridge, spoke in an interview with CNN Radio Argentina on Friday (15) about the possibility of implementing parallel currencies, especially about the creation of a “own currency” by the province of Buenos Aires. According to Jacobs, “considering the speeches and actions of Governor” Kicillof, it is very likely that the province will “start issuing” parallel currencies again.
The economist explained that the province of Buenos Aires is currently facing significant structural challenges, exacerbated by the current management, which was re-elected, which includes the appointment of “excessive employees [públicos] without due attention to necessary reforms”.
The idea of issuing its own currency in the province of Buenos Aires is not new, and has already occurred on other occasions of crisis, such as in 2001, when Argentina faced a serious recession, a moratorium on foreign debt and a social uprising that overthrew the president Fernando de la Rua. At that time, the province launched the so-called “Patacones”, which were bonds issued by the local government that circulated as if they were normal money. The “Patacones” had a nominal value equivalent to a peso, which at the time was linked to the dollar, and were used to pay public servants’ salaries. Furthermore, they circulated among traders and consumers, who accepted them voluntarily or due to lack of an alternative.
The “Patacones”, for a few days, had a price higher than the peso, and were accepted in various businesses and services, until they were rescued in 2003 by the government of Eduardo Duhalde (2002-2003).
The “Patacones” were one of more than 10 parallel currencies or quasi-currencies that emerged in Argentina between 2001 and 2003, issued by different provinces that were facing cash and financing problems. These parallel currencies were the way that the provinces found to escape the total bankruptcy in which they were plunged, as they did not receive payments from the federal government and did not have access to credit.
In addition to the “Patacones”, there was also the “Lecor”, from the province of Córdoba; the “Federal”, from the province of Entre Ríos; “Cecacor”, from the province of Corrientes; the “Quebrachos”, from the province of Chaco; and “Petrom”, from the province of Mendoza. These parallel currencies represented, at their peak, more than 30% of monetary circulation in Argentina, and had different degrees of acceptance and devaluation, depending on the credibility of the issuing governments. At the time, the International Monetary Fund (IMF) was one of the main critics of these emissions, considering them as a way to “escape the fiscal adjustment” that the organization demanded.
The experience of parallel currencies in Argentina was controversial and did not help to fully resolve the serious crisis that the country was facing at that time. For a time, they even generated concern, as they were beginning to serve as a source of inflation, debt and legal uncertainty, as well as a factor in deepening the lack of monetary control.
Parallel currencies were also seen as a symptom of national disintegration and lack of action by the federal government, which also issued its own currency for a time called “Lecop”. They also created a problem for trade between provinces that adopted different types of currencies, which depreciated very quickly.
Contrary to what Bianco stated, the Argentine Constitution in its article 126 prohibits the issuance of its own currencies by the provinces, including Buenos Aires, without the authorization of Congress. This responsibility is currently delegated to the country's Central Bank. Despite this, the minister even suggested that he could still issue coins through a request to the Banco Provincial de Buenos Aires, an institution that, according to Bianco, has a “special authorization” to carry out such activity.
Bianco argued that Banco Provincial has a unique authorization to create its own currency based on the fact that the institution was created before the inclusion of Buenos Aires in the Argentine confederation, which occurred through an agreement signed in the 19th century.
Jacobs described the idea of the return of parallel currencies as a “bleak picture”, highlighting that, if Argentine provinces choose to follow independent paths in financial terms, they will have to “deal with the consequences of their choices”. In his view, such actions can lead to undesirable or challenging results, similar to the economic problems faced during the 2001 crisis.
The economist also interpreted the possible adoption of these parallel currencies, mainly by Buenos Aires, as a form of “rebellion”, a “reaction to current policies and circumstances”, emphasizing that citizens will have to “live with the repercussions of political decisions taken by the province”.
Argentina currently has no parallel currencies in circulation, but rather other forms of alternative money, such as cryptocurrencies, which have gained popularity in recent years, especially among young people.
In this scenario, the website Yahoo! finance last week published information that some Argentine provinces would also be exploring the creation of their own digital currencies, which would be linked to some natural or economic resource in their territory and which could be used to carry out commercial, financial and tax operations. These digital currencies would be “different” from cryptocurrencies, as they would have the “backing and regulation of provincial governments”, and would not be based on an open and distributed network, but on a controlled and centralized platform.
According to the website, provinces such as Misiones, Jujuy and Córdoba are already studying the possibility of developing tokens digital technologies supported by local resources, but still face legal challenges and debates about their viability.
#Argentine #provinces #create #currencies #bad #idea