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Argentina's Bitcoin-friendly president-elect wants to shut down Central Bank

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(Kitco News) - Javier Milei, Argentina’s Bitcoin (BTC) friendly presidential candidate, won the country’s run-off election on Sunday after securing more than 55% of the votes cast over his opponent Sergio Massa.

According to data provided by Bloomberg, with almost 99% of the votes counted, Milei won 55.7% of the votes, giving him a nearly 3-million-vote lead. He will officially take office on Dec. 10.

Milei’s victory is notable in that he is an outspoken critic of the central banking system and holds a positive view of Bitcoin as a way to return monetary power to the people.

"We have to understand that the central bank is a scam," said Milei when asked about Bitcoin. "What Bitcoin is representing is the return of money to its original creator, the private sector."

Argentina has had a long-lasting battle with inflation, which has become a divisive issue in the South American country as the older generations who benefit from the current system want to continue with the socialist approach while the younger generation is ready to try something different.

Inflation has reached 143%, while the 10-year bond yield is 26% in U.S. dollars. In response to Milei’s victory, dollar bonds have risen, and Bitcoin hit its highest price on Argentinian markets late on Sunday.

BTC/USD Chart by TradingView

Milei sees the central bank as the main problem, calling it a scam and a “mechanism by which politicians cheat the good people with inflationary tax.”

While the libertarian economist is the anti-establishment choice and holds a decidedly positive view of BTC, he has not signaled any intention to make Bitcoin legal tender in the country. Instead, he has indicated a desire to ditch his nation’s peso and adopt the U.S. dollar as the national currency.

He ran on a platform dedicated to bringing inflation under control by any means necessary, including the removal of the peso and stripping the central bank of its power to print money. “Closing the central bank is a moral obligation,” Milei said after his victory.

At one point during his campaign, he said the peso “isn’t even worth excrement,” and advised Argentinians to avoid it as a mode of saving as “that garbage isn’t even useful as fertilizer.”

Milei’s plans are likely to run into opposition in the legislature, however, as the country’s Congress is divided, with no political party holding a majority.

Plans to dollarize Argentina are also likely to face challenges in the courts. In September, Supreme Court magistrate Horacio Rosatti told Spanish newspaper El País that replacing the peso with a foreign currency would be unconstitutional and violate national sovereignty.

Other South American countries that use the greenback include El Salvador, Panama, and Ecuador. Incorporating the USD helped these countries achieve a greater level of economic stability by bringing inflation under control and lowering interest rates, while simultaneously making it impossible for their governments and central banks to print money to cover budget gaps.

Milei hopes to achieve a similar outcome for Argentina, which is on track to shrink 2% this year, according to the latest central bank analyst survey, partly due to the impact of the recent drought that cut corn and soy crops in half. Two-fifths of Argentinians currently live under the poverty line.

The Argentinian peso has lost about 90% of its value against the dollar on the black market since the start of the current administration in 2019. Analysts have estimated that the country would need to borrow roughly $30 billion to dollarize its economy, but that figure could be lower if the peso undergoes an even bigger devaluation. The problem with that outcome is that it raises the risks of hyperinflation, according to some economists.

Brad Setser, a senior fellow on the Council on Foreign Relations, said the path forward would be “interesting” because “dollarization without any usable dollars at the central bank is a technical challenge (to put it mildly).”

“Not sure [though] that dollarization leads to the risk of hyperinflation, as Bloomberg suggests,” Setser said. “The immediate risk, of course, is that the peso depreciates sharply (technically, Argentina can only dollarize at a very depreciated peso). But the subsequent risk is less hyperinflation and more generalized default.”

“Dollarization – if done for real – implies that all domestic liabilities are redenominated into dollars,” Setser added. “And it isn't at all clear how a government with no dollars would be able to honor its domestic dollar liabilities. The BCRA's remaining dollars are pledged to back the bank's required reserves, and China may well want its CNY back. The IMF isn't keen on lending Argentina more. The core constraints won't go away.”

Bitcoin price trends higher as Milei's victory in Argentina stokes optimism

While many analysts have focused on Milei’s plans to dollarize the country, others have suggested that his election will be positive for BTC.

“I expect that Javier Milei will focus first on stabilizing his country's currency. Obviously, this is his goal with the dollarization,” said Stacy Elmore, co-founder of The Luxury Pergola. “However, this isn't the most exciting development. The most exciting aspect could be a shift in attitude towards cryptocurrencies like Bitcoin.”

According to Mauricio Di Bartolomeo, co-founder and CSO of Ledn, Milei’s election is “a huge deal for Bitcoin and digital assets for several reasons.

“Argentina is the 24th largest economy in the world by GDP. Larger than Nigeria, Singapore, the UAE, and Colombia,” Bartolomeo said in a note to Kitco Crypto. “It has the third highest inflation rate in the world, at 138% annualized.”

Bartolomeo, whose family originated from Venezuela and witnessed first-hand the unraveling of the country’s economic system as the value of their currency plummeted, was able to improve his situation by mining Bitcoin.

“Crypto adoption [in Argentina] is very high – most recently ranked 15th in the Chainalysis top 20 list of countries by crypto adoption,” he said. “Bitcoin and crypto were already solving a problem, for Argentinians, but Milei’s presidency could supercharge their usage and relevance for Argentina.”

He noted Milei’s plans to dollarize the Economy, shut down the Argentine Central Bank, and “get rid of ‘legal tender’ laws, which means that Argentinians will be able to freely pick whichever currency (or digital asset) they want to deal in for their everyday use.”

“Milei’s team is closely engaged with the crypto community, and has expressed a desire to work collaboratively for a regulatory framework that allows the industry to flourish,” he added.

Putting it all together, Bartolomeo said this means that “Argentinians will soon be able to legally transaction in Bitcoin and stablecoins, which will boost adoption even more.”

“Argentinians already distrust local banks. Regulatory clarity around crypto services will create a huge opportunity for world-class companies focused in Argentina,” he said. “First, El Salvador, now Argentina - Latin America is quickly becoming the capital of the crypto world.”

David Waugh, business development and communications specialist at Coinbits, told Kitco Crypto that “Milei's election as a central bank critic and free market advocate boosts Bitcoin in Argentina and globally, as reflected by its upward price movement following the news.”

“His positive stance towards Bitcoin, although not committing to making it legal tender, aligns with the growing popularity of Bitcoin and stablecoins as mediums of exchange in Latin America,” he said. “Milei's victory, marking the second Bitcoin-friendly presidency in the region (the first being El Salvador), underscores an increasing political acceptance of non-government money.”

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