Argentinian voters are deciding whether to proceed with a central bank digital currency (CBDC) or rely on the U.S. dollar as legal tender before the presidential elections.
Sergio Massa, current Minister of the Economy, is running for presidency under the Union for the Homeland party and is a keen advocate of creating a new digital currency for Argentina. His main rival, Javier Milei, running under the umbrella of the Libertarian Party, is pushing for the dollarization of the Argentine economy as a solution for the country’s economic travails.
Ahead of the October 22 polls, analysts say voters will be split along the lines of monetary policy, with their decision expected to have lasting effects on the Argentinian economy. If citizens vote in Massa, Argentina will turn to a CBDC to solve its economic woes, but there are concerns that it could be a long, bumpy road ahead.
The country is still in the research phase, while its peers in the G20 have begun experimenting with CBDCs. In contrast, its next-door neighbor, Brazil, has surged ahead with a CBDC pilot, enlisting commercial banks, fintech firms, and Web3 service providers to assist in developing the digital realm.
The other option for citizens is Milei’s dollarization plan—an ambitious scheme to shut down the central bank and make the U.S. dollar the de facto currency. Milei’s plan is a response to the “shoddy” handling of the local economy by the banking regulator, leading to waves of galloping inflations over the last decade and national currency devaluation.
Currently, many residents are hedging their wealth with the U.S. dollar, citing its stability over the peso. Among emerging markets, the peso has been tagged the worst-performing currency after losing half of its value against the dollar.
“The peso melts like ice in the Sahara,” said Milei ahead of the showdown with Massa at the polls.
However, plans to replace the peso with the dollar still have to contend with local and international opposition. On the international front, Argentina has been invited to join BRICS, a coalition of nations described as potential emerging superpowers.
In recent months, BRICS have made moves to circumvent the U.S. dollar in bilateral trading, relying on their native currencies for transactions. Should Argentina elect Milei, the country’s membership in BRICS hangs in the balance, given his affinity for the dollar.
CBDCs gather significant steam
Around 90% of 81 central banks are already exploring the viability of CBDCs to improve financial inclusion, payments, and cross-border transactions, according to a survey by the Bank for International Settlements (BIS). However, rolling out a CBDC is fraught with challenges, including stiff competition from existing payment options and the potential elimination of cash.
To solve the challenge, the International Monetary Fund (IMF) and the BIS are pushing for common standards in the development of CBDCS. Concerning cross-border functionality, the BIS has been experimenting with ways to improve the interoperability of CBDCs with its recently concluded Project Icebreaker.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Utilizing sovereign nodes for CBDCs & micropayments
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