Do you think 9% inflation is bad? Try 90%

Eduardo Rabuffetti is Argentinian and has been to the United States once, in 1999, on a honeymoon trip to Miami. However, he probably knows the $100 bill better than most Americans.

He says he can identify a forgery by touch. He can describe exactly which guy has $100,000 (ten stacks of bills just over an inch tall, which is easy to hold in one hand). And on numerous occasions he walked the streets of Buenos Aires carrying tens of thousands of US dollars in his jacket pockets.

This is because Rabuffetti, who is a real estate developer and has built two office buildings and a house in the Argentine capital, bought the land for each of these buildings by paying with US$100 bills.

“Here, without seeing the money, nobody signs anything,” he said. “After all the crises we’ve been through, I can say you get used to it.”

And it’s not just Rabuffetti. Almost all the big purchases in Argentina — land, houses, cars, expensive works of art — are made with cash payment, tall piles of US currency.

To save money, Argentines keep bundles of American bills in their old clothes, under floorboards and in bomb-proof safes, five floors underground, which require passing through nine locked gates.

Argentines hold so much American currency — experts believe perhaps more than anywhere else outside the United States — that sometimes dollars are thrown away by mistake. Last month, passersby found tens of thousands of dollars that the wind dragged from a dumpster in Argentina.

The dollar is king in Argentina because the value of the Argentine peso is disintegrating, particularly over the past month. A year ago, the dollar exchange rate on the parallel market was 180 pesos. Today, it has risen to 298 pesos. With the sharp fall of the Argentine currency, prices are skyrocketing to keep pace. Many economists anticipate that the country’s inflation, which has already reached 64% this year, will reach 90% by December.

It’s one of the country’s worst economic crises in decades, and that’s saying a lot, by Argentine standards.

Countries all over the world are trying to deal with rising prices, and there may not be a major economy that better understands how to live with inflation than Argentina.

The country has struggled with rapidly rising prices for most of the last 50 years. During a chaotic period in the late 1980s, inflation reached the almost unbelievable mark of 3,000% a year, and Argentines were rushing to do their shopping before stores had time to mark down prices. Now high inflation is back, and it has exceeded 30% annually every year since 2018.

To understand how Argentines deal with the situation, we spent two weeks in and around Buenos Aires, talking to economists, politicians, farmers, “restaurateurs”, realtors, barbers, taxi drivers, money changers, street artists, street vendors and unemployed.

One thing has become perfectly clear: Argentines have developed a highly unusual relationship with their money.

They spend their pesos practically the moment they receive them. They buy everything from televisions to potato peelers in installments. They don’t trust banks. They rarely use credit. And after many years of constant price increases, they have no idea how much things should cost.

So far, things have been generally calm. Wages for many jobs are increasing by nearly 50% a year. Homeowners can increase their rents at similar rates. And millions of Argentines use the parallel market to evade government restrictions on buying US dollars.

The result is that, in the wealthiest areas of the Argentine capital, construction continues apace and restaurants and bars are packed. At Anchoita, one of the most popular restaurants in Buenos Aires, reservations are only available for January.

In the poorest neighborhoods, people collect cardboard to sell, get together to buy food in groups, and barter goods, avoiding the use of weight altogether. Argentina’s poor typically don’t have jobs with automatic wage increases, and they certainly don’t have the money left over to buy US dollars. This means that they earn very little, and in pesos, while the prices of everything around them become more and more expensive. About 37% of Argentines live in poverty today, up from 30% in 2016.

On July 2, the Argentine Minister of Economy resigned. In the 26 days that followed, the value of the peso dropped by 26%. Then, President Alberto Fernández fired the new economy minister. It was the 21st time that an Argentine economy minister had held the post for two months or less.

printing more weights

Argentina’s recent bout of hyperinflation is linked to the same things that have driven prices up around the world, including the Ukrainian War, disruption in supply chains and huge increases in public spending.

But many economists also believe that Argentina’s inflation is self-inflicted. In short, the country spends far more than it needs to fund free or heavily subsidized healthcare, universities, energy, and public transport. To make up for the deficit, the government prints more pesos.

The IMF (International Monetary Fund), to which Argentina owes $44 billion, urged the government to cut its deficit and adopt tighter monetary policies. On Wednesday, the new economy minister, Sergio Massa, took one of the most significant steps in many years, promising that Argentina would stop printing pesos to finance its budget.

Prices are fluctuating so much that in recent weeks many companies have suspended sales to try to determine at what point they will stabilize, making it difficult to find certain items, including cooking oil and auto parts. Some farmers have also decided not to sell their wheat and soy crops, betting that prices will rise — and thereby reducing the benefits of a commodity boom that should benefit an exporting country like Argentina.

In a small store in downtown Buenos Aires, Noelia Mendoza was selling her toilet paper stock. Vendors reported that they had run out of toilet paper to supply, prompting her to raise the price. A pack of four single sheet rolls now costs 290 pesos, or $1.50% above the previous month’s price. “There’s going to be a shortage,” she said.

Carla Cejas, a friend of Mendoza’s, who was at the store, had her hunch: “I never understood why people had bidets, until now.”

A backpack with 10,000 $100 bills

Ignacio Jauand, 34, is a press agent and buys everything he can in installments, including his bed, his clothes, a PlayStation 5 console and a potato peeler.

It’s not that he can’t pay cash, but that he’s betting the peso will drop. If he’s right, your final payments will cost you significantly less. He said that gamble always paid off. “The last installment I paid for my TV or refrigerator was the price of two or three McDonald’s combos,” he said.

“It’s by buying things that you beat inflation,” he added.

That is the mantra of Argentina. The value of weights disintegrates, so it is best to spend them as quickly as possible.

Argentina’s central bank estimates that Argentine households and non-financial corporations hold more than $230 billion in foreign financial assets, most of which are denominated in US currency. Most of this money is kept in international bank accounts, but some of it is kept in safes and hiding places around the country.

This dependence on the dollar is bad for the peso, which is why the government prevents Argentines from buying more than $200 in US currency each month. To acquire this amount, Argentines can use the government’s official exchange rate, which says that each US dollar is worth about 130 pesos.

But a different exchange rate — used in international fund transfers, certain corporate transactions and the parallel market — puts the peso at less than half that rate. The dollar today is worth about 300 pesos at that rate. (And since it is a truer measure of the open market view of the peso, we use it to convert the figures quoted in this article.)

Yanina Arias, a real estate agent in Buenos Aires, said she had completed hundreds of deals in her 10-year career, but none settled in pesos. Sellers often demand “spotless, tear-free dollar bills with large effigies,” Arias said. “Notes with small effigies are not accepted”

The effigy in question is the face of Benjamin Franklin. The black market usually offers 3% more for newer banknotes, with the larger Franklin effigy, because they are more difficult to forge.

Seven Argentines described buying real estate by paying cash, but few were willing to allow their names to be mentioned in the article for fear of an audit.

To go to the bank to close a deal, they reported carrying tens of thousands of dollars in their pants and grocery bags full of products. Arias said wealthier people hired armored cars.

A financial services worker in Buenos Aires said that when she sold her family’s farm for $1 million a few years ago, the buyer handed her a backpack full of $100, 10,000 bills.

Later, when she bought her apartment, she put $100,000 of the money in the pockets of a coat and ran to the seller’s house. The sellers, an older couple, insisted on counting the money manually, note by note.

Translation by Paulo Migliacci