Between March 2008 and 2014, in just six years, the euro went from US $ 1.55 to US $ 1.05 while the pound went from US $ 2 to US $ 1.25. They were very strong devaluations and helped people to get advice and make decisions about their assets. The question is: how many people (people and not companies) went over to the dollar and how many went to buy dollars from the banks to save?
Probably none but maybe some. The general population continued working, buying, saving, investing, selling, retiring, in its currency of origin. Did anyone try to pay an account with dollars in Europe? It is something totally abnormal and most of the times rejected. The currency is one of the factors of a functioning system, composed of multiple variables, which lead to long-term confidence.
Last month, a data read as “positive” in Argentina was that people bought less dollars. Beware of this information: 1,140,000 people bought dollars and, assuming an average family of 4, the operations can reach 4,560,000 people or more than 10% of the population.
When in Argentina we celebrated that there were fewer purchases of dollars for hoarding, the only thing we celebrate is that the Central Bank lost fewer reserves.
It is of little use to generate more savings instruments in pesos, a titanic effort on the part of the authorities of the capital market, when people repudiate their currency.
Less than a month ago, the Lebac rate, a title that represents a loan in pesos to the BCRA, reached 75% a year. That reflects what people asked of an entity, which never in its history fell into default, to invest in pesos.
This situation is “unfortunately” normal. The lack of credibility in the currency is a consequence of decades of doing things wrong and punishing savers consistently. The convertibility, in the 90s, did not change the perception of the peso as a reserve of value, it simply linked it to the dollar. Unfortunately, in 2001/2 we realized that they were “argendólares”, a hybrid that in the end ended up as an illusion and could not be honored. Clearly, “bimonetariedad” does not exist. A hybrid system can not be maintained with the advantages and flexibility of seigniorage for the weight and reputation of the dollar.
From 1883 to date, thirteen zeros were taken out of the national currency, so that a current peso equals 10 trillion pesos of 1883. Between 1813 and 1883 there was no single currency and there were circulating quasi-monies from the provinces, so it is usually from the year 1883.
The Argentine currency has gone through the following megadevaluations: ○ October 1958: 68.2% ○ April 1962: 64.5% ○ June 1975: 99.3% ○ April 2, 1981: 225.8% ○ February 1989: 61.1% ○ December 2001: convertibility crisis ○ The 8 years of Cristina Kirchner: 233%.
Then comes the question: why question or criticize who saves in dollars? The only thing that people do is protect themselves, cover themselves, since they have no decision-making power over the economy and politics, beyond one vote every two years. If we want people to think and save in pesos, we have to give stability and predictability to the currency. It is a tremendously complex work, where the country and the governments of the moment failed consistently decade after decade.
And there is another question: retirement systems in the world, and Argentina in particular, are seriously underfunded. Many will go bankrupt in the next few years. Increasing life expectancy will demand more and more resources from the country’s exhausted coffers. More informal jobs will contribute less and less to those coffers.
It is important to encourage savings, since people must have additional means to retirements and pensions when they retire. Unfortunately, if we only encourage saving in a “devalued” currency, we will be paddling against the current. The key to saving is to stop consuming today, postponing that consumption for tomorrow. But if those savings are confiscated through taxes, inflation, devaluations and other herbs, then the incentives are incorrect.
It is in the country’s interest that the population save, beyond the currency, because the future burden of retirement in the hands of the State will not allow the majority of the pensioners to maintain themselves. When the active worker (35 to 55 years old) has to help their parents, who worked 50 years and contributed to a retirement system that does not give them back anything, and at the same time maintain their children, who have years of school and study, it is an impossible and frustrating effort.
I think it is time to think about offering people hard currency savings instruments, without the risk of pesification (Argentine risk, default, cross border).
Thinking about the savings of Argentines to finance productive activity, led us to this monetary debacle. It’s time to think about people.