Inside Argentina's $300 Billion Parallel Economy

Justin Norman: Argentina. While it's well known for this…

Sports Announcer: One more Messi moment!

Justin Norman: It's also well known for this. 

News Anchor: Argentina is in an economic crisis again.

Justin Norman: A few years ago, if you exchanged $100 for pesos, you got back this. 

Tucker Carlson: Well, now I feel rich. How do you carry all this?

Justin Norman: Argentina had hyperinflation. 

News Anchor: Compared to a year ago. Inflation has accelerated to 138.3%. Prices keep going up and up. The owner of this business decided to plaster the outside of his shop with 20 peso bills. And that's because it's a lot cheaper than buying wallpaper.

Justin Norman: The story everyone told was simple Argentinians turned to stablecoins like USDT and USDC to save themselves from hyperinflation. 

Paolo Ardoino:_ The Argentinian Peso lost 90 percent of its value against the US Dollar in the last ten years. They just need something that will protect their families, that protects wealth._

Justin Norman: Argentina has become the poster child for stablecoin and crypto adoption. Then Argentina's new president, Javier Millet, came to power with a commitment to steer Argentina out of its recent economic crisis. And while Argentina still has high inflation today, the economy is doing much better. 

So I went to Argentina to answer a simple question what happens to stablecoin adoption when hyperinflation goes away? But when I got there, I realized I was asking the wrong question.

Justin Norman: When you're delivering cash, how much is a typical amount? 

Cadete: Dos ciento mil. 

Justin Norman: $200,000? That's a lot!

Justin Norman: In Argentina, it's more way more than just hyperinflation. 

Cuevero: Empezó hace triente años a financieras o cuevas a través de que por la cantidad de impuestos.

It started 30 years ago with the financiers, or caves, because of the amount of taxes.

Justin Norman: I just arrived to Buenos Aires. One of the first things that tourists like me will do when they get here is go and change money on Calle Florida, Florida Street. As you walk down the street, you can hear “Cambio, Cambio, Casa de Cambio”. There it is. 

Those people are called Arbolitos or little trees. They act as the agents or sales representatives for the exchange houses that line the street of Calle Florida. 

I came to Argentina expecting to witness more visible aspects of crypto or stablecoin adoption. Prices listed in USDT. "Crypto accepted here" signs in stores, since Argentina has some of the highest crypto adoption in Latin America. 

Instead, daily life is still very cash based. And these arbolitos are the most visible aspect of a vast informal market [a network of informal exchange house called cuevas - or caves] that service Argentina's demand for dollars. 

People may come to Florida because they think they can get the best rate in Buenos Aires, and for many years, due to exchange controls, the only place the Argentinian could buy dollars was on the blue dollar market. 

A key feature of Argentina's informal system is its parallel exchange rates.

The blue dollar in Argentina is the unofficial exchange rate for US dollars. IIn an effort to protect against devaluation, Argentina has, on and off for the past 30 years, implemented policies of exchange controls, which limit dollar access,. But when official dollars become scarce as they did in 2023, when the banks limited access to $100 per month,  it drives up the demand of Dollars and price on the informal market.

Since this market reflects real supply and demand, the blue dollar rate is usually much higher than the official one. Sometimes the blue dollar rate is even double. For example, in 2023, if you withdrew money from an ATM at the official rate, you'd lose half its value because that same amount of dollars could get you twice as many pesos in the blue market. 

While it's a good deal for visitors, Argentinians' willingness to pay a premium to move their money into Dollars reflects something deeper: a constant distrust in their own currency. 

Justin Norman: Do you also buy crypto? 

Arbolito: Yes, USDT.

News Anchor:_ Inflation hits everyone, but the greatest impact is felt by workers, especially those on lower wages. Shoppers in Argentina are pinching pesos to make ends meet._

Manuel Beaudroit: Bear in mind that 50% of the economy is off the books, and I think if you didn't have that, Argentina would collapse.

Justin Norman: Argentina's struggle with inflation didn't appear overnight. It goes way back. Since gaining independence in 1816, the country has defaulted on its debt nine times and gone through nine different currencies. During one of its darkest crises in 2001, Argentina went through five presidents in just 12 days, a sign of how deeply instability runs through its economy. 

Manuel Beaudroit: In the late 1990s, they imposed it's called, Convertibilidad, the convertibility of 1 Peso to $1 in a way to decrease the level of inflation. The problem that to have $1 for $1, you have to producers. And we didn't have that possibility. And at some point it exploded.

Justin Norman: As the economy deteriorated, Argentinians began panic converting their pesos to dollars and rushing to withdraw their savings from banks. The government responded by freezing accounts and forcibly converting dollar deposits into pesos. They called it Corralito, the Little Cage. Protests erupted across the country.

Decades later, even as President Milei works to stabilize the economy and restore trust in the government. Many Argentinians still choose to keep their money outside the banking system where the government can't touch it.

Manuel Beudroit: The corralito, it's present every day and leaves a deep scar on Argentina. 

Justin Norman: Inflation plays a part in Argentina's demand for dollar assets, and so does distrust of the government. But there's more to it.

Manuel Beudroit: People will get to know crypto because of inflation, but they will choose to use them because of taxes. 

In Argentina, we have a lot of taxes, but we have two really bad. Something called debitos and creditos, credits, which are debits and credits tax, which basically each time you receive a bank transfer from a company or you send money to a company, there will be a 1.2% tax on that banking transaction. The funny part is that the name of the bill that imposed tax is the Bill for Incentivizing Bank Transfers, which is, you know, the opposite. 

The second one is called Ingresos Brutos, gross income, which in some cases and these are imposed by the provinces, it's up to 9% of the transfer the government will take that money. So there is a lot of incentives on using cash. 

Apart from these two taxes that I mentioned, there is also one called Bienes Personales which is a personal goods. So you will pay like 2% or 1.2% of everything that you hold as an asset. And that is the main driver of cash adoption. And that's why Cuevas and the whole parallel market exists because if you go full on the official market, you will be bankrupt. 

Justin Norman: For all these reasons, Argentinians want to keep their money outside the system. Argentina's government estimates there are about US$200 billion so-called "mattress dollars" out there – five times the reserves of the Central Bank. And now they're turning to stablecoins too, where Chainalysis estimated Argentina has around $90 billion in stablecoin transaction volume. When you talk to small business owners, you understand the necessity. 

Berni Cavanagh: For the record, I do not vouch for tax evasion of any sort. 

Justin Norman: Berni runs a creative agency in Buenos Aires. Most of his clients are abroad, so he gets paid in dollars. Like millions of Argentinians, he’s stuck in this tension between formal and informal.

Berni Cavanagh: I envy sometimes when I talk to people that come from places that have reasonable economic policies, because there's some ease of doing business in their countries and they pay their share of taxes. And that's probably the end of the story, With us, t's always something that you have to figure out, like, like some puzzle, you know, that you have in your hands and your profitability depends on it. So you have to take it very seriously. 

Justin Norman: So what happens to that money if you go through the traditional channels? 

Berni Cavanagh: Let's say you had a fee of $1,000 to keep it simple. So the government, by its exchange policy, they get $500, and then with the $500 that you keep, you have to convert them forcefully into Pesos. So then you lose also the possibility of reserving value in Dollars at least. No, you don't even get that. And after that, taxes and other expenses. 

It started becoming more efficient to just find clients outside of our country, in part to avoid all these regulations that made us, made it very difficult for us to stay afloat even when providing a good service that was well paid for. But the problem is, how do I get the money out of it to use it for my expenses, or to use it to pay my employees, for example? 

Justin Norman: For small business owners like Berni, stablecoins like USDC become a tool for moving seamlessly between Dollars and Pesos.

Berni Cavanagh: Your ability to be successful does not depend anymore on the value that you provide. It depends on how smart you are with the handling of this crazy economic maze of policies. So I would say that stablecoins and the usage of, uh, technology-based payment solutions was what like closed the chain of it all in the end.

Justin Norman: Berni is one of the lucky few who earn in dollars by exporting his services abroad, and for whom stablecoins are a digital entrypoint into the parallel economy. 

But inside Argentina, most people still earn Pesos, and most people still buy their Dollars in physical cash.

Manuel Beudroit: I don't know if you know this, but Argentina is the second worldwide holder of actual dollar bills in the world. The US, then Argentina.

Justin Norman: Even with the accessibility of stablecoins and the improvements to the economy under Milei, Argentina’s parallel market still thrives, because its constituents still want to keep their money outside the formal systems. So if you want cash, it’s on its way. 

Justin Norman: How long have you been doing this for? 

Cadete: One year and a half. 

Justin Norman: I’m walking with a cadete - a young Argentinian delivering cash around Buenos Aires as a side hustle. 

Cadete: From 10:00 in the morning to three of the afternoon, maybe four. There are many different offices. Every day I go to a different one. 

Justin Norman: So when you're delivering cash, it's always dollars?

Cadete: No, no, sometimes it's pesos. Sometimes it's euros or pounds. But yes, most of it is dollars. 

Justin Norman: How much is a typical amount?

Cadete: Dos ciento mil.

Justin Norman: $200,000? 

Cadete: Yes. 

Justin Norman: That's a lot. 

Cadete: Yes, but that is the max. 

Justin Norman: Are you nervous when you do this? 

Cadete: At the beginning, the first week. But then. No, I do not even think about it.

Justin Norman: These cadetes are delivering money for the informal exchange houses that move the real volumes in Argentina. They’re called cuevas - the caves. 

Cuevero: Soy cuevero que sería operar en el mercado informal. 

I’m a cuevero [“cave operator”], which would be operating in the informal market.

Justin Norman: In an environment of distrust, cuevas play the role of the banks. And even while the economy improves, cuevas still continue to service the demands of the informal economy. 

Cuevero: Es verdad que Milei está volviendo los bancos a que sean bancos reales como los del los internacionales, eh? El sistema bancario se estaba volviendo a poner serio. Te va a decir que seguramente que las cuevas están con menos negocios de menos volumen, eh? Porque ahora los bancos, eh, funcionan como bancos, la sal, la salix, eh? Tienen mejores licencias, eh? Pero en la práctica no está pasando. De hecho, estamos teniendo más.

Milei is indeed making banks return to being real banks like international ones. The banking system was becoming serious again. He’ll say that surely cuevas have less business, less volume, because now banks function like banks, the exchange rate is better, they have better licenses. But in practice it's not happening. In fact, we're having more [business].

Justin Norman: The people who are customers of the Cuevas, they're using Cuevas for a specific reason, but it's not because they made money illegally.

Cuevero: No. Es puramente porque ofrecemos servicios que los bancos no. Por ejemplo, ya el cambio vos no puedes ir a un ba a un banco a cambiar dólares. Eso ya. Si. Importantísimo. Porque hay montón de la mayoría de los argentinos tienen dólares

No. It's purely because we offer services that banks don't. For example, currency exchange. You can't go to a bank to exchange dollars.That's already very important because most Argentines have dollars.

Justin Norman: The informal economy has strong network effects when so much of the country’s wealth is held outside of the formal system. Argentinians can’t go to the bank when dollars are scarce, they can’t keep their dollars in the bank when they acquired them informally, and ultimately, they don’t want to use the banks at all.

So the government has tried to incentivize Argentinians to bring their money back into the formal system. 

In 2017, under President Mauricio Macri, the Argentinian government issued a blanqueo - which means whitening or bleaching - effectively a tax amnesty allowing Argentinians to put their money back into the banking system. 

And that blanqueo was considered a success, raising $149 billion, of which, $80.1 billion were assets abroad, and almost $70 billion were assets located in Argentina.

But then the government changed. Currency controls came back. Inflation spiraled. And anyone who'd trusted the amnesty learned their lesson.

Cuevero: Cuando cambió el gobierno al Kirchnerismo he empece toda la gente que blanqueó tuvo que pagar con alrededor 40 percent sobre todo los activos blan blanqueados, cuando la promesa era que no tenían que pagar impuestos sobre nada.

When the government changed to Kirchnerism, all the people who had whitened their assets had to pay around 40% on all the whitened assets, when the promise was that they wouldn't have to pay taxes on anything.

Justin Norman: And while the Milei government is actively working to build trust… 

Juan Pazo: Es nuestra responsabilidad como gobiernos generar los incentivos que inviten al ciudadano a entrar al sistema formal.

It's our responsibility as government to generate incentives that invite citizens to enter the formal system.”

Justin Norman: …decades of broken trust keep money outside the formal systems.

Cuevero: La frase que te dije ayer? No me quiero co volver a quemar con leche. Y eso se refiere a que si cambia el gobierno, eh, tienen miedo a que les hagan pagar impuestos como pasó en el pasado.

The phrase I told you yesterday? I don't want to get burned by milk again. And that refers to the fact that if the government changes, eh, they're afraid they'll be forced to pay taxes like what happened in the past.

Justin Norman: So there’s $200 billion in cash circulating in Argentina, but more of that demand is shifting to stablecoins. 

Justin Norman: I'm curious to know how stablecoins have influenced and been used in the Cuevas business. 

Cuevero: There is more demand for USDT than cash.

Manuel Beaudroit: Stablecoins, in a way, have become a much more interesting and useful technology that just, you know, buying dollar bills. Argentina is the second worldwide holder of actual dollar bills under the mattress. You know, there is the saying that they like this crunchy sound of the bill also to touch it. I think that's pretty much a legacy decision. And it's a shitty decision in my point of view, because basically you are losing money all the time because you are not getting generating any yield on that. But that's a reality. And I think stablecoins in a way, can be kind of a proxy to that. Instead of going to a cueva and get a dollar bill, actually you have access to [stablecoins] which also gives you a yield and its much easier to move.

Justin Norman: Manuel Beudroit co-founded Belo in 2021, an Argentinian crypto exchange and digital wallet.

Manuel Beaudroit: We need to make this really accessible for everyone. Why don’t we put everything together in one place and solve that pain point. That was the idea behind Belo.

Justin Norman: So while there are no “USDT accepted here” signs in Buenos Aires, you do see Mercado Pago signs and point of sale devices on almost every corner. And apps like Belo are enabling everyday spending of stablecoins - for those who want to spend their stablecoins - by building the infrastructure to seamlessly on and off ramp between stablecoins and pesos. 

Manuel Beaudroit: This experience of hey, we are going to change the world and everyone will be accepting stablecoins in our store directly. I started doing that in 2016 and it was impossible. It's easier to bridge the two worlds rather than, you know, trying to reinvent the wheel in a way. 

Justin Norman: I was drawn to Argentina by stories of a fully onchain future. But what I saw was actually a more deeply intertwined relationship between crypto and fiat. Just like Argentinians built infrastructure in the form of cuevas to move in and out of dollars as needed, now Argentinians are moving between Pesos and stablecoins seamlessly as well.

Stablecoin adoption isn't driven just by hyperinflation. It's driven by distrust. A century of broken systems, punishing taxes, and a formal economy that just doesn't work. 

So even while the economy improves under Milei, as he makes deals with the US to protect the peso, Argentinians still fear what happens next. 

The crypto world calls Argentina a success story. High adoption and growing volumes showing proof that crypto solves real problems.

And all around the world, where there are similar conditions, everyday people are turning to stablecoins for their needs. The solutions are bottom up. But if we tell the wrong stories about what’s driving adoption, we risk solving the wrong problems….

In the next episode of  Money Trails, we head to Bolivia… where similar conditions of dollar scarcity are driving stablecoin adoption in one of the fastest growing markets for crypto adoption in the world…