MercoPress. South Atlantic News Agency

Argentine banks short of storage capacity to pile the rapidly depreciating Pesos

Argentina’s largest denomination banknote – 1,000 pesos – is currently worth about US$ 5.40 at the official exchange, but barely reached US$ 2.65 in the real market

Argentina has been plagued by economic and financial instability for years and years, and its overall situation has worsened considerably in recent years, with the country once again defaulting on its debt in 2020 and having been forced to turn to capital controls to protect its national currency.

Boasting to be the second largest economy in South America behind Brazil, Argentina currently owes US$40 billion to the IMF, with inflation close to 100%, almost 40% of its population living under the poverty line and 60% of minors hungry or undernourished.

Besides the hard times for the people, this also has practical issues for the financial system, Argentina’s largest denomination banknote – 1,000 pesos – is currently worth about US$ 5.40 on official exchanges, but barely reached US$ 2.65 when valued at real-world exchange rates currently.

According to the president of the Argentine Chamber of Commerce and Services (CAC), Mario Grinman, there should be at least 5,000-peso banknotes issued to help the situation.

“Since its appearance in November 2017, the 1,000 pesos has lost almost 100% of its purchasing power. In 2017 it covered almost half of the basic basket and today it does not reach 6%. Today to go to the supermarket you have to carry a bag of banknotes. Logistically it is a disaster,” he said.

Amid the surge in prices, Argentines have been forced to carry hundreds of banknotes to pay for ordinary purchases, with transactions becoming increasingly difficult due to the need to use a greater number of bills.

The amount of money in public circulation in Argentina has soared from 895 billion to 3.8 trillion Pesos, in the last three years, mainly to finance budget deficits, according to the Central Bank.

Now, according to the sources in the banking industry, Argentina’s banks are simply running out of storage room to pile the rapidly depreciating banknotes.

Reportedly, Banco Galicia and the local unit of Spain’s Banco Santander have been forced to install additional vaults to store peso bills.

Banco Galicia has already added eight vaults for cash storage over the past year to the two it had since 2019, and reportedly plans to set up two more in the coming months.

The country’s banks and business groups have been calling on the regulator to print higher-value bills for years, saying it would make the system more efficient for banks, businesses and citizens.

“Transporting, mobilizing and withdrawing a greater number of bills every time increasingly provokes unsafe situations beyond creating complications and expenses,” Fabian Castillo, head of the Federation of Commerce and Industry of Buenos Aries (FECOBA) said in a statement issued earlier this month.

So far Argentina’s Central Bank declined to comment on the requests for larger-denomination banknotes, and said no announcement on the issue is expected in the near future.