‎The Velocity of Dirty Money: What the Grubby 100-Peso Notes Say About Inflation in Argentina

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By Bianca Fernet, The Bubble

You know that feeling when you touch a crisp Argentine peso note?

In fact, you’ve probably noticed that your peso bills are quite the opposite. Generally pretty tattered, often taped together, and sometimes all around limp and damp. While I lack adequate resources to do a full comparative study on the quality of Argentine peso paper via other papers in the world, the weary state of our peso notes is likely more due to inflation. Inflation in Argentina has been around for literally the better part of the century. In fact, a recent post even discussed if Argentines don’t really react to the phenomenon anymore.

Although inflation is not new here, it still receives a great deal of attention on the political front. The government maintains a frozen price list for a basket of consumer goods, and the statistics agency INDEC claims one can eat on ARS $10 pesos per day. The Bubble’s own Sam Pothecary recently tested the claim and he’s still around (I think?), so at least we know that to be true to some extent.

The Government has threatened to prosecute private economists for posting independent measures of how quickly the peso is devaluing, but that has more or less blown over for now. The World Bank has threatened and assisted the country in improving its reporting tendencies, but private estimates still put the annual rate at over 40 percent.

So while it’s certainly not new, inflation still makes the covers of the country’s papers because it’s not something you get used to, no matter how long you’re mired in it. Cronista published an article stating that it now takes ARS $100 to buy what ARS $10 could purchase in 1999. The further the more tactile comparison to state that to buy a basic “basket” of goods today, you need over ARS $1000, or at least eleven physical bills. To put that in perspective, in Uruguay it takes 1.3 bills, in Colombia 1.8 bills, and in Brazil 4 bills. That’s quite a big difference.

In economics there is a concept called the velocity of money, which is measured through indirect means using quantity of money in circulation, price, and the real value of transactions.

Measures of inflation focus on price – and the government seeks to mitigate the effects inflation has on the population by tactics such as freezing supermarket prices, subsidizing energy costs, and sometimes even intervening at the border. And yes, then you can discuss endlessly which prices are born by whom, and whether a basket of goods whose price increases is capable of capturing inflation accurately.

But what you can’t dispute is how damn grubby Argentine bank notes are getting. Five years ago, it was common to receive a ARS $2 peso note that was in tatters. Now the 20’s and 50’s have the same “holes in the middle, frayed around the edges” look going for them. I wouldn’t be shocked if the 2’s are no longer worth the paper they’re printed on.

Inflation is one of those nasty truths that would be best handled could it be less politicized. It most greatly affects the poor, who could quadruple in number, as they spend a higher percentage of their income on basic needs. Rather than quibbling over what the official annual index rate is exactly, elected officials should take note that Argentine pesos are literally zooming from hand to hand so quickly that they are coming apart at the sides and in the middle.

And it will take more than tape to fix the lives it chews up. By Bianca Fernet, The Bubble

If you saw Argentine President Cristina Fernández de Kirchner’s Cadena Nacional, her state of the nation address, you’re likely wondering what the hell that was. Read…  Kirchner Jumps Off Deep End, Takes Argentina with Her

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  1 comment for “‎The Velocity of Dirty Money: What the Grubby 100-Peso Notes Say About Inflation in Argentina

  1. Boyfromtottenham
    Nov 23, 2014 at 10:05 pm

    Hi from Oz. interesting article, Bianca. But when I got to the bit about “the government seeks to mitigate the effects that inflation has on the population by tactics such as freezing supermarket prices and subsidising energy costs” I saw red flashing lights – economists are taught that these tactics don’t work in free economies, so I’m amazed that your government is dumb enough to try them. Unless, of course, you don’t have a free economy any more. ;-(

    Lots of luck!

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