the web portal bloomberg line received the exclusive that four financial entities, which prefer to remain anonymous so far, confirmed the construction of new vaults and the opening of new deposits due to the large amounts of pesos in cash that they must store due to the high circulation that these are currently having in Argentina.
Inflation is a complete enemy in Argentina, and for some years the community has been facing the decline in purchasing power. An example of this is this situation that is currently occurring. 5 years ago, the thousand pesos bill (the highest denomination in the country) was equivalent to USD 54 while now it is equivalent to around USD 3, which shows how purchasing power has been lost and also justifies the use of so much cash.
According to the note, The Central Bank of the Republic of Argentina (BRCA) has recorded data showing that the number of banknote circulation this month reached 8,064.6 million units, a new record reached. Of this total figure, 38% (3,086.5 million units) are 1,000 Argentine pesos (ARS) bills, and 16% (1,346.7 million units) correspond to 500 ARS bills. “They are the only Argentine bills that are still worth more than one US dollar measured at the free exchange rate,” Bloomberg Línea detailed.
The rest of the bills, which are those with denominations of 10 ARS, 20 ARS, 50 ARS, 100 ARS and 200 ARS, which make up a total of 3,631.4 million units and are also listed as “low denomination” bills within banks. and which cause disagreements since, the government refuses to issue new, higher denomination notes.
“From the government’s economic team they usually argue that the decision not to issue higher denomination bills is based, firstly, because what they seek is to promote the digitization of payments and secondly, because by doing so, they avoid facilitating informal transactions linked to to evasion or illegal acts”. reported the web portal.
In short, he recalled that the second reason was the same as that given by the European Central Bank (ECB) for the decision to remove the 500-euro bill from circulation.
The situation of excess physical weights has been occurring since the first semester of 2022 when the Association of Argentine Banks (Adeba) issued the first statement on the effect that excess pesos had on banks. Subsequently, in March, the association indicated that 900,000 million ARS had been withdrawn from the system’s automatic teller machines (ATMs), while 600,000 million ARS had been given at the ticket office in the branches. Which gives a total sum of 1.5 billion Argentine pesos.
This total amount was equivalent to 1,500 million bills of 1,000 Argentine pesos, which weigh 1,500 tons and with which 1.5 Olympic swimming pools could be filled.
At that time, the number of banknote circulation was over 7,363 millionwhich at the percentage level is 8% less than it currently is, showing that the problem is becoming more and more cumbersome.
New treasures, ATM top-ups and low-denomination banknote collection
bloomberg line mentioned that one of the banking entities that provided him with information said that “Nominality represents a problem for them, since it not only makes life difficult for people, but also increases the costs of transporting cash and increases storage space.” He also added that “They are building new treasures in different parts of the country to be able to cope with this greater volume.” Since, what has increased is the amount of volume and not “more money in real terms.
Another entity reported that in its treasury they have pallets full of 100 ARS bills that they receive in deposits. However, it is not convenient for them to recharge ATMs with them because it is not profitable for them. According to the source, ATMs are currently being recharged at least 3 times a day but one limitation is the withdrawal limit, therefore, it is more convenient for them to do so with bills of 1,000 Argentine pesos or 500 ARS.
A third financial entity joined the information on the web portal, which mentioned that to expand the spaces to store physical money, works were carried out in the general treasury, specifically in a branch that had all the security requirements and also in Mendoza.
The banking entities, in order to be able to separate themselves a little from low-denomination bills, “are assuming the cost of sending remittances to paying banks”. Which leads them to face a set of different expenses such as: logistics, investment in machinery and/or structure expenses.
“Now they have a percentage above the balance with respect to what they keep in custody on behalf and order of the BCRA. It grew by 17% compared to the previous year, so the space assigned to this operation is about 900 cubic meters.” explained Bloomberg Line.
The Central Bank of the Republic of Argentina cannot accept physical banknotes in the form of deposits, therefore, the entities have permission to store in an account and order in their name. Which then brings as a consequence that, despite the fact that this cash is reflected as deposited in the BCRA, they are really in the vaults of these entities, which is why new vaults are being built and occupying new spaces.
A fourth banking entity stated that 40% of its collection is in low-denomination bills that do not work for ATMs due to the withdrawal limit amounts.
Faced with the problem, banking institutions are trying to “minimize costs and optimize spaces.” Although they did not find themselves in need of building new deposits, they did have to enable and optimize them within vaults already built in order to make use of them.
Possible solutions
Banking companies have presented some possible solutions that could help to lower the intensity of the problem they are facing. The main one is the one mentioned above, creating new bills with a higher denomination.
Inflation caused the 100 Argentine peso bill, which is the second most abundant bill, to lose utility because it cannot be placed in ATMs due to its volume and is already becoming unacceptable. Even the BCRA itself does not accept it because it does not have enough capacity for its destruction.
So, other solution options that they present in order for society to move to electronic means of payment are: “allow cash management collectionThis is to be applied to deposits greater than one million Argentine pesos and withdrawals greater than 500,000 ARS. “Remove or lower the so-called “cheque tax”” for payments and digital transfers of less than 200,000 ARS.
“Stop collecting tax payments and withholdings on cards” to promote their use by businesses.
Consequences of an informal economy
Argentina operates under a purely informal economy, which means that, according to estimates, 8 out of 10 transactions continue to be made in cash.
In November 2022, Mercado Pago carried out a study entitled “The digitization of SMEs in Argentina” in which the company showed that 50% of the invoicing of SMEs in the country continue to use cash payment methods.
Fausto Spotorno, director of economic and financial research at the consulting firm OJF & Asociados, in his statements for Bloomberg Línea mentioned that “Argentina continues to have a cash-intensive economy because digital systems are very expensive.” which occurs due to the commissions and the tax burden that digital wallets have.
The taxes, perceptions and withholdings present in Argentina for Spotorno are responsible for altering the use of digital payments for commercial operations and at the same time are the reason why the digital system is not expected to develop correctly.
“In Argentina there is an economy that works in the dark and it is not going to stop doing it because you leave it a small ticket. It will not go to target because the tax burden for a company is unsustainable. So, between going bankrupt and using a small ticket, they are going to choose the second option ” Fausto expressed for the web portal.
This generates an immediate response, according to Spotorno, which is a high cost for banks due to the cost related to transferring and moving the money. However, the logistical cost caused by having low denomination bills affects both sides, both the financial system and the private sector.
Adoption of bill counting machines
Given the high rate of circulation of banknotes, Argentine businesses have chosen to use banknote counting machines in order to deal with this problem in the most optimal way.
The demand for these machines has really skyrocketed since the last quarter of 2021, since then the virtual sales sites have registered a high demand for the machines for at least the last 12 months. Having peaks between August and May, which was when inflation reached and exceeded 7% per month.
“From a company dedicated to the rental and sale of ticket processors, they told this medium that the demand skyrocketed towards the end of 2021, but that it was maintained during 2022. In addition, they confessed that in this last time they detected a greater demand for actors than usual They did not demand their products. However, they avoided giving further details or figures in this regard.” finished the Bloomberg Line note.
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