Have you ever force yourself to stop just for a moment and appreciate the immense prosperity you have been endowed with to enjoy and preserve and share with all those that are along for the journey with you? I can speak for my own life, money, health and happiness that now is one of those times of recognition of the immense gifts that I have been given. A crisis always has real faces and the currency situation happening in Argentina is no exception to this. We all face moments of crisis and on a personal, community, national and global scale and often the variable are too complex to fully diagnose how any particular crisis generates itself. In the case of Argentina their crisis may not be entirely of their own making but the residual of a history of crises and the failures to rectify them.
It seems that the expectation of higher yields in US denominated debt over the medium term and a lower general risk appetite for Emerging Markets (EM) investments has contributed to a relapse of the great Argentinian currency crisis. As Bloomberg Reported this morning the “MSCI Emerging Markets Currency Index declined to 1,677.27 as of 10:11 a.m. in London, on track for its lowest close this year”1. This index although not specific to Argentina speaks to a broader trend of capital fleeing EM markets into various other asset types which may yield less risk. The central bank of Argentina has attempted over the last week to stabilize the situation by increasing their core interest rate 3 times from 27.25% on April 27 up to 40% on May 4th 2018 where it currently sits. Argentina is in a tough spot as either they raise their interest rates and stifle economic growth as their cost to maintain existing debt goes up, or they do not raise rates and allow their currency to depreciate forcing a large import trade deficit higher foreign currency denominated debt costs. The president Mauricio Macri has reached out to the IMF for a $30 Billion Flexible Credit Line to provide the market with some reassurance but this remains a politically risky move as in Argentina “the vast majority now believe ‘the IMF’ is synonymous with crisis and usury.”2.
Given the interconnection of globalized markets there is a strong fear of from investors that emerging market governments will mismanage their currencies by effectively spending on entitlements beyond their means to manage repayment and economic growth. Cryptographic currencies can force transparency and accountability onto governments to ensure they manage their currencies in alignment with a specific economic objective. The government could program certain restrictions that would tell investors that the crypto currency would not be manipulable and would be transparent for all stakeholders and this would go a long way to comforting the market and maintaining the stability of the currency. Try to enjoy the good times as the bad times have a way of showing up when you least expect them.