Devon Zuegel on Inflation, Argentina, and Crypto
Oct 17 2022

Depositphotos_605957294_S-300x168.jpg Devon Zuegel talks with EconTalk host Russ Roberts about the crazy world of money and finance in Argentina. When inflation is often high and unpredictable, people look for unusual ways to hold their savings. And when banks are unreliable because of public policy, people look for unusual ways to keep their savings safe and to make financial transactions. Welcome to Argentina, where Zuegel finds surprising applications of cryptocurrency for solving problems.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Steve Scanlan
Oct 17 2022 at 1:14pm

Please post a picture of the stack of money that paid for the meal. Great Episode! Informative, entertaining and I hope it doesn’t happen here.

[I’ve posted the picture, which Devon Zuegel has kindly sent, next to the discussion in the transcript. It’s around the 44-minute time mark. –Econlib Ed.]

Oct 17 2022 at 1:52pm

Great episode. We had some elections in the second half of the 19th century that were about monetary policy. I have commented before that my great grandfather’s generation knew more about monetary policy than today’s generation…but I was only thinking about Americans. It sounds like this generation of people in Argentina are well versed in it.

One pushback on Russ’s comment about predictable inflation. Is there such a thing? And can people do much to defend against it even when it is predictable to some degree? The expectation, if not predictability of inflation, is often used by those promoting government spending as a reason to spend the money now, because any hesitation will only make it more expensive in the future.

Don’t bankers depend on inflation to help securitize the underlying asset? Disinflation would put the underlying assets at risk. Right?  It sounds like banks are looking for a sweet spot on inflation for their benefit. I’m not sure why buying into 2-3% inflation is good for anyone other than banks.


Oct 18 2022 at 7:25am

There is only one way to protect against surprise inflation—be able to deliver the services and goods that people need.


If our productivity is made more costly by wars, trade restriction, or climate or anything else disasters, prices in impacted items will need to increase to achieve an equilibrium.

Ajit Kirpekar
Oct 17 2022 at 8:22pm

My first thought listening to this is why is Argentina’s government continuing a pro inflation policy? If the people are so disproving of an inflationary regime, why haven’t the political leaders been voted out? I googled to see if Argentina was in fact a democracy and the Internet suggests it is.

Ok….?? The best rational I can come up with is Argentina has too many internal promises made that outright default is so politically unpalatable that inflation keeps the facade of solvency. It may defacto impoverish the pensioners all the same, but de jure they still receive a check in the mail so promises are being “kept”.

I will confess, I also thought Argentina was a rich country located in Latin America, so this news was fairly jarring. They are squarely in the middle in terms of per capita consumption, but are poor in terms of the economic freedom index and horrendous in terms of investment per GDP( not a surprise when you have a hyperinflation regime).

All this comes back to the sad fact that inflation is actually a worse choice than default and why the mmt advocates are worse than snake oil salesmen. Governments that print their own currencies need not ever formally default. But that technically true statement is less than cold comfort to someone forced to dump their life savings into bricks.(which sounds so absurd even to say out loud)

Clifford May
Oct 18 2022 at 12:22am

Fascinating discussion as usual. But you avoided the 900-pound gorilla: The Argentinian government policies that maintain this “tragic” chronic, debilitating, soul-crushing inflation.  Also the 450-pound gorilla: Argentina is supposed to be a democracy. Why don’t Argentinians vote for politicians who would implement sound economic policies? One more point: Peronism. It’s a dreadful ideology. Yet so many Argentinians continue to embrace it. And they still adore Evita. Why? I’m sure you know economists with whom you can explore these topics, but if not email me and I’ll help: Cliff May, founder and president, the Foundation for Defense of Democracies (FDD)  Thanks, Cliff

Craig Miller
Oct 22 2022 at 5:09pm

Wow, I was surprised to see you, Cliff, pop up in comments here.  I’ve been attempting to follow you since your Denver days (Rocky Mountain News, Chanel 6, etc.).

The last time I was in Argentina was about 5 years ago.  At the time it seemed to be a relatively happy, peaceful place from Buenos Aries to Ushuaia.  My guess on why they seemed relatively content is that the people have learned to adapt to and accept inflation as the norm, much as we seemed to do (yet grumble about) during the 1970s.  Did it cause inefficiencies? Yes, and that is why it is a suboptimal state for the economy. Also, as I believe was mentioned at the start of the podcast, paying taxes is not a number 1 priority for Argentinians, so in some sense they are paying their taxes through inflation.  Certainly not my first choice.

Joseph Crivelli
Oct 18 2022 at 1:01am

Great discussion!
One question about the value of the US dollar over time, contrary to what our was said hasn’t the dollar lost a significant amount of value over time? I recall learning (from where?) that it’s lost 99% if it’s value over the past century, but in large part since the decoupling of the gold standard. Am I mistaken?

Ben Service
Oct 18 2022 at 6:54am

I think that is something Ray Dalio pointed out at some point recently but I can find the link.  He was making an argument about investing in real estate from memory.  I’ll see if I can track down the podcast.

Oct 21 2022 at 12:53am

If the Fed consistently hit the targeted 2% inflation rate, the dollar would lose 85% of its value in 100 years.

Shalom Freedman
Oct 18 2022 at 1:27am

This was a very interesting episode. Israel where I live had a threat of hyperinflation in 1984 when inflation was at an annual rate of four-hundred percent with the threat of reaching an annual rate of 2000 percent in the following year. but his responsible action of then Prime Minister Shimon Peres and his Treasury Secretary Yitzhak Moda’i fended the threat off. They introduced a stabilization plan which had all the major actors in the Economy working together.

Unfortunately, Argentina has apparently had a situation of poor governance for over a century. The cost both financially and socially has this interview makes clear has been extremely great. The uncertainty of life with a currency rapidly losing its value makes a much more difficult life for everyone. What I did not understand from the episode is why in all this time various Argentinian governments have not dealt with the problem. One can imagine in all that time there would be at least one administration which would think to place the welfare of its citizens before its own survival.

Oct 18 2022 at 7:31am

Good discussion. What is missing from most discussions is that cryptocurrency really depends on governments not insisting participants follow the rules of banks and securities issuers. The only value of the tech is making the matter confusing for those involved in making laws and regulations.

A USDC account is simply an account at a very weakly regulated bank that is exempt from many regs. The only reason it works is that the US government does not insist in Circle collecting IDs from all  participants.


Kevin Ryan
Nov 7 2022 at 7:54pm

I, at least, appreciated your comment

i’m continually frustrated at the lack of interest, by people who want to appear knowledgeable, in understanding what cryptocurrencies really represent, as opposed to people just basically repeating the descriptions given by promoters

Oct 18 2022 at 9:00pm

I appreciate Ms. Zuegal’s and Russ’ faith in the US but a currency that inflating at something near 10% YOY isn’t exactly a stable store of value.

Dr. Duru
Oct 19 2022 at 5:31pm

I was fascinated hearing about the importance of crisp and clean U.S. $100 bills in Argentina. In Nigeria, it is the same thing with an additional requirement that exchangers will only accept U.S. $100 bills that are no older than a certain age. If you can exchange those older bills, you get a lower rate. I assumed it had something to do with trust and/or counterfeiting risk, but I would love to understand more.

It would be great to hear about how people deal with inflation in less extreme circumstances than in Argentina, especially in places where the non-wage economy is so important: Nigeria, Ghana, etc…

Mark Kobey
Oct 20 2022 at 1:45am

This phenomenon exists in countries around the world with failed banking systems.  In 2006 I travelled to Myanmar which at the time was ruled by a military junta and under economic embargo from the west.  Crisp $100 bills were worth 10% more than worn bills, and more than the cumulative of $100 in small bills.

there were also certain $100 bill serial number prefixes that were suspect and not usable because they were suspect counterfeit. I did not enter the country with enough cash, so I  went to a money changer who processed a Visa cash advance at a 30% commission, as Visa and Mastercard were not doing business there due to the embargo.  For $130 charged to my card, he gave me $100 in cash.  The transaction was processed in Singapore and the USDs moved from there to Myanmar via a courier.  It was truly bizarre.

Chris Rooks
Oct 20 2022 at 7:43pm

A similar situation happened to me while I was vacationing in Zimbabwe about 20 years ago. I naively dildn’t bring enough USD with me and most activity providers (safaris, hotels, etc.) wouldn’t take the local currency (which was only good for small dollar items like water, bread or beer). As such, I ran out of dollars fairly quickly. I couldn’t find anyone who would exchange Zimbabwe currency into USD either. I ended up having to go to the nearest town with an ATM in Zambia (after my driver bribed the border crossing official), withdraw something like 6 million Zambian kwachas (they have since revalued the currency), convert that to USD at a local exchange, and then cross back into Zimbabwe again. Most savvy travelers were carrying uncomfortably large amounts of dollars, and if I recall correctly, you had to pay in cash or pay an exorbitant fee to use a credit card at the fancy and expensive Victoria Falls Hotel. Credit cards were virtually worthless as a payment mechanism there.


A comparable occurrence happened when I was in Venezuela. I had remembered my African experience but was wary about carrying a large stash of dollars given crime concerns in Caracas. Unfortunately, I ran out of dollars too soon. Merchants everywhere were seeking dollars while the local currency could be used for general spending, but at a much lower relative value than the dollar. My plans for an excursion to Angel Falls were thwarted by poor planning. Cuba had another interesting currency story as well. It was good to arrive in Panama City where the local currency was pegged to the US dollar at 1:1.

Glen Lyons
Oct 20 2022 at 4:47pm

Towards the end of the episode, Devon expressed optimism that “pockets of the Argentinian economy could dollarize or move to some other currency without the government’s oversight. And, over time those little pockets could grow.”  I certainly understand her logic: if people escape the country’s currency, then they will be better off.  I’m not sure that’s true though.  I start with the assumption that the government isn’t inflating the currency because they’re careless, but that they’re doing it because it’s necessary to managing their commitments.  If that’s true and then large pockets of the economy moved to another currency, then wouldn’t the government either be forced to either inflate the currency even more, take more draconian measures to try to force everyone back to the national currency, or allow some sort of economic collapse of the government?  If I’m right, then the problem isn’t really the inflation but the government overextending itself and that’s not so easy to fix.  I’d love to know what others think about this.

Ajit Kirpekar
Oct 21 2022 at 12:23pm

I took “dollarize” to mean black market transactions that are intentionally hidden from the government. That means as dollarization grows, your essentially lowering the tax base to the government, making the balance of payments worse. So like you, I think the government has a powerful incentive to curb dollarization for that reason alone.

I read some comments above about how the blame falls on the country’s central banks. But I think thats an incomplete statement. To me, this is all coming from a fiscal crisis.

Btw, its interesting to think back to 2008 and Greece’s economy being in shambles. A large contingent of economists believed the problem was because Greece had made its commitments in euros and thus couldn’t devalue (which to me is an anodyne word for inflate). That makes some sense for countries with strong reputations for paying back debt and seeing temporary inflation as exactly that, temporary. But one does not need to connect too many dots to see what the likely end game would be for Greece if they had had that option available. We’d be talking about a Greece version of Argentina.

This harkens back an econ talk podcast with Russ and Don Boudreaux on debt. While in the literal sense, government debts are not exactly the same as household debts, the end result still involves paying the piper one way or the other.

Tom Sargent passed on a lovely quote from Alan Greenspan to Congress in the ’90s. “If the government balances the budget (assuming low to nonexistent debt), my job is easy”.



Jim Hills
Oct 22 2022 at 5:41am

I’m a US expat living in Nigeria for 3+ years now. This was a super interesting episode for me based on my experience here.

when I arrived in 2019 the Naira official vs secondary market rate were similar… around 320 Naira per dollar. Now in 2022 the official Naira rate is ~430 vs the secondary market rate of ~750 per dollar.

I get paid in USD, but I use to have a portion of my pay deposited in Naira to a local account at the official rate. I stopped that 2 years ago. Now I have a local USD account that I wire money into from my US account, withdraw in cash from the bank, then handover to my secondary market contact who electronically deposits the money into my Naira account.

we use to drive up to the exchange folks in the street, hand over a brick of USD and then collect bags and bags of Naira. We eventually figured this wasn’t the safest approach, so now my contact comes to the compound gate and has completed the Naira deposit before I hand over my brick of USD.

The challenge lately has been getting the USD out of the local bank. They just don’t have dollars. It takes me 2-3 weeks of twice daily visits to get the USD out.


Oct 26 2022 at 12:31am

I really enjoy your podcasts, Russ. You’re such a great interviewer! I have to say, though, that a lot of what was said in this one is not accurate. I’m an Argentine economist, living in Canada for the last twenty years and I visit Argentina every year. The description on how the real estate market works is completely inaccurate – there’s no escrow and transactions are fully registered.  The biggest bill is indeed $1000 (not $10,000).  And the crypto fever described… I think the problem is that as with any tourist, you get a very partial view of the countries you visit… you only see what you’re shown, you only experience the reality of the people you live with (in this case sounds like middle-high class). So nope… a very small percentage of people have the means or money to invest in crypto. 50% of the population in Argentina is below the poverty line… I would have called this podcast ‘observations of a tourist in Buenos Aires’ – but it doesn’t hold as serious analysis of the economic mess Argentina is in right now.


Oct 26 2022 at 6:53pm

I kind of had that impression too, that the people she was talking about were upper middle class.  I think for the majority of the population economic problems in Argentina have been devastating.  A long time ago I read a book by Fernando “Ferfal” Aguirre about his experiences during the 2001 economic collapse in Agentina.  My impression from that book was that times were quite desperate.  Lots of crime, life savings wiped out, even starvation.  Here’s a link to it if you’re interested:

I was wondering about precious metals.  Do people buy gold or silver?  Ferfal indicated that many did, if they could afford it.

Oct 27 2022 at 9:39pm

The story of Argentina is quite similar to other countries with less stable currencies, like Iran. The good thing about Argentina is that they have uncensored internet, which made the people more capable for using crypto transactions. Very good episode like always.

Walter Boggs
Oct 29 2022 at 10:45am

This episode goes right into my top ten. Devon is articulate and pleasant to hear, and the topic is fascinating. Well done.

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TimePodcast Episode Highlights

Intro. [Recording date: October 3, 2022.]

Russ Roberts: Today is October 3rd, 2022, and my guest is programmer and writer Devon Zuegel. She has two podcasts: Tools & Craft, and Order Without Design, which is with Alain and Marie-Agnes Bertaud. And some of you may have enjoyed Alain Bertaud's episode on EconTalk--one of my favorites. And, her podcast is named after his book, Order Without Design.

We're going to talk about a remarkable piece that you wrote, Devon, a couple of months ago at Freethink, "Inside the Crypto Black Markets of Argentina." Devon, welcome to EconTalk.

Devon Zuegel: Thanks for having me. I love this podcast a lot so it's really exciting to come on to speak.


Russ Roberts: This piece you wrote could probably be the basis for a semester-long course in economics related to monetary policy, trust, innovation, regulation, exchange. It's a really fascinating piece.

But, before we get to it, tell us a little bit about yourself and how you came to experience cryptocurrency in Argentina.

Devon Zuegel: Yeah. I guess I've had my own version of a semester-long course, which is, over the last few years I spent about a month a year now in Argentina because my fiance is originally from Buenos Aires. And so we go down there to spend time with his family. And, something that was just so striking to me the first time I went there was that almost every single dinner conversation ends up at some point coming to the topic of inflation, the topic of monetary policy. And, this is with people who are not economists. They don't find it interesting as an intellectual exercise. But they're all terrified, day after day, that their savings are going to be obliterated tomorrow. So, it's--sort of a basic aspect of survival is swapping tips about how to beat inflation, where to store your money so that the government can't take it.

And, something that was especially striking to me was that Argentina actually works fairly well in some ways. For listeners who have never actually been there, you might be imagining a place like Honduras or, like, somewhere that's completely a mess and you walk around and you might get killed.

Argentina is not like that at all. Buenos Aires in many parts actually feels a lot like a European city. The downtown is somewhat safe. I mean, I wouldn't walk at 3:00 a.m. by myself, but overall it feels quite safe. And, I think it's just very interesting that there's this underlying financial turmoil that is just creating problems constantly. And, it's been the case for a hundred years or more.

So, anyways, that's my education about Argentina and crypto [cryptocurrency]; and my personal background is that I'm trained as a software engineer. I also write a lot about urban economics in particular and the building and design of cities.

Russ Roberts: That's cool. Argentina is an--economists like to talk about Argentina because about a hundred years ago it was one of the most prosperous countries in the world, and now it's not. Your observation, which is interesting, is that it's not as un-prosperous as one might think.

But, it has pursued a very high level and erratic--most importantly as we'll maybe discuss--high level and erratic level of inflation that I presume--and you're welcome to comment on this if you want--but I presume is due to the fact that their tax system and their respect for, say, compliance with taxes is so poor that the government basically uses money printing as a way to finance government activities. But, part of its problem, if not a significant part of its lack of economic progress over the last century, is due to the fact that inflation has been a perennial problem.

Devon Zuegel: Yeah. And, people point out, as you did that, that Argentina was one of the wealthiest countries about a hundred years ago. And, in monetary terms that was true. They had a high GDP [Gross Domestic Product] per capita.

But, I always push back when people say that because in some other ways they were not so wealthy. And, I think also it was a bit of a fluke of the particular time period.

So, in the early 1900s, the first few decades, Argentina was purely an agricultural economy. They had not really made any industrial progress or not much at all. And, this also happened to be a time of very high commodity prices. And so, as a result, they were making a lot of money, in part because of World War I. A lot of grain production had shut down in other parts of the world so Argentina's grain was much more valuable.

And so, it made them rich temporarily. But, I don't see that as real wealth because they weren't really moving on to the next economic stage of industrial development.

So, I think that a lot of people say, 'Oh, it's such a mystery that they were doing so well and then they stopped doing well.' And, I think it's actually more like they were never doing that great. And, there was sort of a confluence of factors in the early 20th century that made them quite wealthy for a while, but those factors went away. And, then also mismanagement of the economy, in part due to inflation and some other issues, exacerbated those problems.

Russ Roberts: A fantastic observation; and always a good reminder to be skeptical when someone tells you about when something started, if they perhaps cherry-picked that. It's interesting--I've heard that for forever and maybe it's not a particularly useful comparison: A similar thing is when people look at, say, the progress of South and North Korea after the Korean War, or East and West Germany after World War II. Those are clearly defensible times to start the comparison because that's when they both split apart. But, arbitrarily saying: 'You know, in 1922, Argentina was one of the wealthiest countries in the world,' may be misleading. So, that's an excellent point.


Russ Roberts: But, what we're going to start with is this reality that inflation has been a perennial problem. It alternates between high levels of inflation, or rising levels of inflation, or hyperinflation. Hyperinflation being times when the prices are rising so rapidly, money is usually being printed so rapidly, that people stop using money and turn to barter; and many basic economic things break down.

Devon Zuegel: Yeah. In the last hundred years, Argentina has seen an average of 100% annual inflation. So, to put that into context, that means that on average every single year the currency has lost half of its value.

Now, that statistic could be a little misleading in the sense that some years it's much, much lower; and some years it's much, much, much higher and you see hyperinflation. So, if you pick any random year in the last hundred years, it could be a very different number. But, if you had money from Argentina a hundred years ago, it would be utterly worthless now. If you halve something a hundred times it gets real small, real quick.

Another fun--well, 'fun' is maybe not the right word. Another interesting statistic is if you had had $100,000 worth of Argentinian pesos in 1995, they would be worth about $310 today. That means: if you held your savings in pesos, they're gone.

So, Argentinians, they do not do that anymore. They tend to save in USD [U.S. Dollars]. That's the typical preferred payment method.

Or, for people who are poorer and maybe don't have access to dollar markets, they will save in bricks. They will literally buy a pallet of bricks each time they get a paycheck and they'll build their house brick by brick, so that that's their store of wealth. It's not fully monetized because bricks are hard to transfer. They're a little heavy. So, people don't really trade in bricks so much. Once you buy it, it's just like a savings vehicle. But, that works out all right for people.

And, there's also no mortgage industry whatsoever in Argentina. So, people really do have to build things very incrementally. They can't build out into the future.

Russ Roberts: That was one of my favorite parts of the article--using bricks. It's hard to carry if you're going down to the grocery. I guess you put two bricks in your pocket, one on each side, maybe; and then you could carry a couple and then pay for your food with four bricks.

But, what you're saying is that generally it's not used for exchange purposes. People are not swapping bricks. But--and, I didn't think about this when I was reading it--but that example is so extraordinary. When you can't trust the banks, you put your money under your mattress. Which is creepy and scary: A fire comes, and you've lost all your money. A thief comes, you've lost all your money. The alternative, of course, is inflation comes and you've lost all your money. And that's what we're going to be talking about.

But, the brick thing is a fantastic money-under-the-mattress example because they're a lot harder to steal. Because you mortared them and you put them in place. And they're not really--it's good that they're not a currency. But, really if you're going to expand your house, you do have the option of using the bricks, and that's your store of value. It's your way of keeping some level of savings. But, could you then break them down and swap them to someone eventually? Do people do that?

Devon Zuegel: I don't know. I would imagine so. They probably hold their value pretty well. Buildings do, all over the world, end up using recycled brick. So, I don't see why not.

Another similar savings mechanism--I live here in Miami and in Miami there's a very booming real estate market. There's a joke that everyone in Miami is a realtor. And there's some truth to it.

And, part of it is because people in countries like Argentina and throughout Latin America, wealthy people will purchase an apartment in the United States as a way to store their money. And so, wealthy Argentinians will have a $500,000 apartment in Brickell or downtown Miami as a way to save for their child's college education. This is very inaccessible to the average Argentinian. This is just for very wealthy people who can afford an expensive apartment.

But, that's one of the reasons why there's such a mismatch of realtors versus other people in the economy, because there's all of this external demand to buy real estate in Miami.

Russ Roberts: The advantage of an apartment in Miami is it could appreciate; and that way it's more than just a store of value. It's better than holding it in a bank with a very modest, if any, sometimes no return. What you're paying for in a bank is just the safety of your money not being taken away from you.

But obviously, in Miami at this current time, at least in the short run, it could appreciate.


Russ Roberts: But, one of the things you start off in your article talking about, some of the challenges for people in Argentina to have any international transactions. And, we're going to start talking about Bitcoin; but I want to mention to people: I have a daughter in London, I live in Israel, I have family in the United States. When you have any kind of international life--as I do, which is very modest; I'm not a global financier. But, if you have any modest international life and you want to transfer money to someone in another country, it's incredibly unpleasant in 2022. Which is kind of shocking. You'd think it'd be easy.

There are options now that weren't available 20 years ago. There's PayPal. PayPal takes a pretty good chunk of your money to make that transaction, a transfer of money to people.

So, in Argentina, you don't just have the general challenge that international transactions have a bit of a high transaction cost to them, or a fee. Sometimes you just can't do it. There's no way to buy foreign goods, no way to transfer money, no way to invest if you're only going to be using the legal Argentinian monetary system.

Devon Zuegel: Yeah. I was going to say: no legal way or no easy legal way that doesn't result in you losing a ton of your money.

So, the list of challenges is extremely long. I will just name a few of them, but, trust me, that it's harder than what I'm about to describe.

So, one challenge is that Argentina has a fixed exchange rate. What that means is that the rate when you want to buy or sell dollars, when you have pesos, is not set by the market. It is set by the government. What that means is that the official exchange rate results in the government effectively taking half of your money when you try to exchange it. So, if you have USD--let's say you are an American company and you want to pay an Argentinian. You're paying them in dollars, and it's going to get transferred to pesos before it hits their bank account. The government has set the exchange rate such that they end up keeping more of the dollars and fewer of the pesos end up getting to the employee. Right now it's about 50%.

Russ Roberts: That's compared to a market transaction which you can--

Devon Zuegel: Compared to a black market rate--

Russ Roberts: avail yourself of if you're courageous. Yeah.

Devon Zuegel: Exactly. Which--I should have explained that before.

So, there's the official rate, the legal rate; and then there's what's called the black market rate, or they call it 'dollar blue' in Spanish. And, this is a very, very different number. I actually haven't checked it today of what the exact rate is. It fluctuates every single day. But usually it's much different. So, like, you'll get twice as much money if you use the black market rate versus the government rate.

And, I think in the United States people tend to be kind of bashful about breaking the law, at least in my friend circles. In Argentina everybody breaks the law. Every single day. Because otherwise you get half the income, and like, you can't pay your rent. And so people--everyone knows exactly what the black market rate is at all times. Politicians will even quote it. Like, it's well understood that this is out there.

Long story short: Everyone tries to be in the black market as much as they can. There are certain transactions where that's really difficult, but for the most part people will try to exchange their money in the black market.

And so, one tip if you ever travel to Argentina: Do not exchange money at the airport, or exchange the minimum amount. Instead, when you arrive, find an Argentinian that you trust and ask them to introduce you to their cueva. Cueva is the Spanish word for cave, which I like. And, that cueva--the cueva is a person who is a black market foreign exchange.

And, it sounds really sketchy. It sounds like you're going to go do a drug deal or something. But it is not. It's totally fine. If someone introduces you to one that they trust, you're in safe hands. It's going to be some random office in a building and every Argentinian who has any money at all does this a few times a week.

So, anyway, that's one of the many challenges. The government also has a bunch of other--like, very high customs taxes and stuff like that, import costs, that also make it very expensive to move things around. It's also illegal to take out dollars at an ATM [Automatic Teller Machine] in Argentina. So, there are no ATMs where you can get dollars. The list goes on and on of how the government makes it difficult to use money and move it across borders.


Russ Roberts: Let's talk about the cueva for a minute, because it's fascinating. I don't know if I've ever done a black market monetary transaction in my life. But, when you're in a foreign country, there are places that have a, quote, "foreign exchange." Often in many countries, of course, as you've implied, they're market based. The price fluctuates on any one day, but it's not controlled by the government.

But, in this case, because the real market--the true price--is so different from the set price, it's, quote, "everyone." That's not, of course, literally everyone; or maybe it is, for people who live there and know how to maneuver.

Devon Zuegel: Yeah, it's not everyone.

So, unfortunately, the average income of an Argentinian is quite low. There's a lot of people who don't make much money in Argentina and so it doesn't make sense for them to move any money into dollars to save because they don't have money to save. I believe that the median person in Argentina doesn't have enough money to save anything, and they're living paycheck by paycheck. And so, they just keep their money in pesos.

But, anybody who has enough money to want to save money will usually be transferring it into USD and then putting that USD in their mattress, or, like a hole in their ceiling, or something like that.

Russ Roberts: USD being U.S. dollars.

And, it's an extraordinary thing. When you read about hyperinflation, say, in the Weimar Republic in Germany after World War I, you'd read about people who would take wheelbarrows of cash to the store--literally--because it took so many pieces of paper to buy stuff, suddenly. And certainly, nobody, after they cash their paycheck, puts it anywhere other than into stuff. You buy stuff.

And, what's happening in Argentina--because stuff is useful and it doesn't depreciate--whereas in a hyperinflation your money is depreciating with every minute or certainly must feel that way.

But, what you're talking about is just so extraordinary and so alien I think to many Americans and maybe many people elsewhere--the idea that you would want to convert your paycheck out of your native currency, quickly, because it will lose value is not an experience most people have.

And then, you're now holding a foreign currency, which of course exchanges on the street in all kinds of ways--it's very fungible. It's very easy to convert it back into pesos if you decide to reduce your savings or you need it for some unexpected cost.

But, as a general idea, if you're wealthy enough to save, the idea that you can't save in your home currency is peculiar. So, now you have a choice. What do you save it in? The dollars are one option. There are others.

Devon Zuegel: Yeah. Some people have saved in other currencies besides USD. USD is by far the favorite.

However, over the last few years, crypto is starting to make an impact and climbing up the charts in terms of how many people are using it to save. I asked my fiance's brother at one point, like, 'Why do you hold crypto? Isn't it kind of stressful for it to be so volatile?' And, he said, 'Yeah, it's volatile, but at least its value goes up sometimes.' He's used to having a currency where it just goes down. Like, it's just nosediving. And so, for him, the fact that it might go up is pretty exciting.

Russ Roberts: That's awesome.

Devon Zuegel: He was kind of joking, but there's also some real truth to that.

And so, some other aspects of crypto--so, crypto is starting to fill in a few gaps in the Argentinian economy. So, in particular holding a lot of cash is pretty dangerous. And, it's physically bulky: if your house burns down--you touched on all that before. There's a lot of problems just saving in cash. Crypto solves some of those problems.

It also creates some new problems. So, there's trade-offs, but for different types of contexts it might be useful.

So, for example, right now if you want to buy a house in Argentina, the typical way you will do this is you'll get a briefcase full of hundred dollar bills and you will meet somebody--and there's, like, an escrow agent. And, actually I should say, the housing market is dollarized, which means that when you buy a house, people will put the price in dollars. This is actually against the law because the government wants you to use pesos, but people do it anyways.

And, the housing market is in dollars because, imagine--it can take quite a while to close on a new house. And, imagine that suddenly the peso loses 50% of its value overnight. If you had denominated the sale in pesos, then you could get 50% less for that house.

So, this is a really big transaction, and so it's been moved over to dollars; and it's been like that for quite a while.

So, you cannot really use a bank account to move that money because it's in USD. And, so people will bring suitcases full of dollar bills to buy a house from somebody. And, you can imagine all the issues with that. If you get robbed that day, there goes your life savings, there goes your house. It's inconvenient. They have to count it. There's a whole process just to count the dollars. It's not how you want to buy a house. So, crypto--

Russ Roberts: The escrow part is also a really interesting part of it. You were about to mention that.

Devon Zuegel: Oh. Yeah. So, basically you have to have, like, a third party who can serve as an observer to the transaction and say that this really happened, because it's not logged anywhere. And, that is actually a very challenging problem in and of itself, because both parties have to agree that this person is trustworthy; and that person pretty easily could just run off with the cash. And if it's cash for a home, that's usually enough cash to--maybe you could go retire off of that money.

Russ Roberts: Yeah. It's fascinating. And, escrow, meaning that this is often money that's going to be held by neither party, which means--usually it's a financial institution in a country that has a successful banking system. But, if you don't have a successful banking system and you're transacting in dollars which you're not allowed to do--effectively, because you can't put it into the bank--you need to find that third party. And that's just not going to work very well a lot of the time. So, I assume houses don't transact maybe that often.

Devon Zuegel: I wouldn't be surprised if it made it a less liquid market. I haven't looked into any stats on that, but anytime you add a bunch of friction to a process, you reduce the frequency of that process.

So, this is a place where I think crypto is just starting to make an impact. I think it's still very, very, very rare. But, there's no reason it couldn't become much more common. If you were to use crypto instead of dollars--and crypto could mean a number of things here. It could be in Bitcoin, it could be in Ethereum. You could do USDC [U.S. Dollar Coin, a.k.a. stablecoin--Econlib Ed.], which is pegged to the dollar. You could use anything you want.


Russ Roberts: Let's talk about that for a sec, because many people haven't heard of that; and I almost know nothing about it. Bitcoin, I know, of course. Long-time EconTalk listeners, many of whom bought Bitcoin back in 2011, I think it was, when we had Gavin Andresen on, or I think 2016 or so and we had Wences Casares. That's when I bought. I have a tiny amount. I didn't buy in 2011 because I didn't know how to do it effectively. I bought in 2016, or whenever, because there was a wallet--and that meant you didn't have to be a programmer to be able to hold your bitcoin in an effective way. And, for many people who have never used it, it's very scary. You have a great line from the grandmother who wanted to use Bitcoin when she heard about it from her grandson in 2016 when she said, 'Money the government can't touch? Help me buy it right now.' And, you're right: she's been holding it ever since.

So, for a lot of people in America or in a Western country with a banking system that's stable, Bitcoin is a possible investment with--it's an investment with a possible upside. There are some people who have an evangelical feeling about it that it's going to change things in dramatic ways.

But, at a country like Argentina--and we had a discussion somewhat along these lines with Marc Andreessen recently--you don't have a reliable banking system. It's a whole different set of motivations. And, I think that one of the more interesting aspects of your article is that a lot of the aspects of Bitcoin that it's advocates preach, turn out to be either used very differently or there are different things that people actually care about.

But, I interrupted you because you said there's Bitcoin and Ethereum, and people have heard of those. But, stablecoin--talk about that just for a sec, again--so, that people can have that. And then you can carry on. Sorry.

Devon Zuegel: Yeah. For sure. So, there's lots of different paths to go down there.

So, for one, stablecoins in the U.S. context don't sound so useful. They actually do have uses, but it's, like, less clear for the typical user who's not super-deep into crypto.

In Argentina, though, a stablecoin--I'm sorry--a stablecoin is typically a cryptocurrency whose value is pegged to something.

In the case of USDC it is pegged to the US dollar. And so, one coin of USDC equals one US dollar, and that's how it stays that way. There's a number of other stablecoins as well that I won't get into and they have different uses. But, for USDC and a number of other stablecoins that are also pegged to the US dollar, you can treat them roughly like US dollars.

And, from the perspective of an Argentinian, this is very exciting, because now, suddenly, they have access to digital banking again without having to use an actual bank that they trust.

And like, to back up as to why it's so important to them: I could spend the whole episode just talking about all the different times that Argentinians have been screwed over by their banks and by government's taking money away from them. But, I will just stick with one that is particularly incredible.

In 2001 there was a banking crisis, and the banks and the government responded with something called el corralito--the little corral--where they basically shut down access to the banks and anyone who had their savings in the banks at that time--which was a lot, because they had just gone through a 10-year period of quite a bit of stability, so a lot of people trusted the government more than usual. A lot of people just could not access their money for almost an entire year.

When they did get their money back at the end of the year and they were able to access it again, they discovered that all of their dollar deposits had been converted into pesos. And the pesos had lost two-thirds of their value in that time.

And so, people were very angry--as you might expect. And, anyone who had had their savings in a bank account learned, I can never do that again. Like: This will ruin my life. Some adults that I know and some of their parents had had their life savings in these bank accounts at the time. And, there were people who committed suicide. It was really a very dark time for many people in the country.

And so, people learned: we don't want to put our money in banks because the government or the bank will do something that makes a huge problem for me.

So, that's why they've moved to cash. But, the cash has all these issues.

And so, USDC, by being cryptographically secure and not something that the government or the local banks can tamper with becomes extremely attractive.

And, the stablecoin is nice because now it holds its value in a more predictable way, compared to the other cryptocurrencies like Bitcoin and Ethereum, which are extremely volatile, very difficult to plan your life around them. And so, those are more effective for speculative reasons and other reasons. Whereas USDC can be more useful for day-to-day transactions.


Russ Roberts: So, the stablecoin, though--and again, I know almost nothing about this. Stablecoin--it's pegged to the dollar. Someone's got to do the pegging.

So, you point out that there's an irony here that--you know, Bitcoin is famous--cryptocurrency in general is famous for its decentralization. But, stablecoin has to have an agent--a institution, an organization--that is making sure that it's stable, USDC to the dollar. Right? And, that's why there's still some uncertainty around it, because that might not be able to persist. Right? And, you're somewhat at the mercy of whoever is moving that around.

Devon Zuegel: Yeah. This is a place where I think some people might read my article and think, 'Oh, she's a complete crypto bull.' And, other people might read my article and think, 'Oh, she's a complete crypto skeptic.' And, the answer is somewhere in the middle.

When I look at the Argentinian use of crypto, it's both much more than people realize and much less philosophically pure than people realize at the same time. So, stablecoins, they can hold their peg in a variety of different ways. Well, I won't go down all the different paths of how they can work, but for something like USDC, someone has to basically have a dollar in reserve for every USDC coin that exists, so that if you want to exchange your USDC for USD, then you can.

This is something that needs to be audited. People have to trust the auditor. There's like a lot of trust to say yes, this coin is equivalent to one USD. And, one challenge--we've seen over the last few months, that a number of stablecoins have actually missed their peg. People are now valuing at 98 cents on the dollar instead of a dollar. Which doesn't sound like a big deal, but the entire purpose of a stablecoin is to be a dollar to a dollar. So, it's actually a very big deal.

Russ Roberts: And, I think it's called stablecoin.

Devon Zuegel: Yes. Not unstable coin. And, there have been some, like Terra stablecoin, which have just completely lost all value; and it's very much a trust game.

And so, I think it's reasonable to point at the situation and ask: Why is that any different than trusting Argentinian banks or the Argentinian government? And, I think that that's a pretty good question to ask. I think I would still maybe trust USDC over the peso just because we know the peso will just keep losing value. It has done so basically for its entire existence. And, USDC has been fine so far. And so, if I had to take a bet between the two, yeah, I would prefer the one that has not continually lost value every single year. But, there's no guarantee. Unlike Bitcoin and Ethereum and others that are not pegged to something, those are things where the value is actually just set by the market, which arguably you could trust more or less depending on your risk appetite.

Russ Roberts: Yeah. But, it raises the question--which you set up the answer to--but if it's pegged to the dollar, why don't just use a dollar? I mean that's so much better. But, when you're buying a house, you got to see the advantages potentially at least of the stablecoin.

Devon Zuegel: Yeah. So, to circle back to the house-buying example, in this case you could just put the private key for whatever cryptocurrency wallet you have, put it on a USB [Universal Serial Bus] stick, carry that in your pocket to the transaction, and do the transaction that way. And, now you don't have to carry a bunch of cash around with you.

I think there's also potential in the future--this is not something I've seen before but I think it's totally possible--to have a smart contract act as the escrow agent so that you don't have to find that third party that you trust. There's a lot of different ways that you could implement this, but there might be some ways to say: Okay, I'm going to put my crypto in this escrow that is handled algorithmically and--I'm going to make one up--but maybe the algorithm is that there's, like, 10 people who all have to agree that the money was transferred for the money to be able to move and they all have to sign it with their private keys. And, if they all do that then the money can move.

And, that's more secure because if you're just trusting one person to physically hold the cash, it's relatively easy for them to run away with it. But, if you have 10 people who all have to agree--then if they don't agree then it just stays--then that's a much safer situation.

I have not designed these things myself, so there's probably someone out there who will do a much better job. But, I think it would be a pretty cool product to use and I think that in Argentina it would be quite popular.

Russ Roberts: Well, you talked a minute ago about the third party involved in this transaction and that third parties--there are all kinds of third parties when you make a large transaction like the sale of a house. Again, in an organized financial system there's title agents, and there's the bank, and then there's often lawyers, and there's the government. And, in America those people are all, quote, "trustworthy." There's, of course, occasionally a thief in there, a crook, but in general the institutions are remarkably reliable. You don't have anxiety about your title agent, and you don't have any anxiety about whether you're actually owning the house. You take a check that you've got from a bank, which is like a stick, but in terms of you can put it in your pocket, and you don't have to worry about your house burning down with the money that you're going to buy the house with or somebody stealing the suitcase you're rolling to the transaction.

But, the other thing, say, in America and in developed countries with good financial systems and good financial institutions and property rights, is that when you buy the house you know it's yours and you don't really lose any sleep over that. But, you seemed to imply a minute ago that it's not clear that that escrow--that third-party person, that escrow agent--there's no[?] question who owns the house, they don't have a reliable registry of ownership. Do you know?

Devon Zuegel: I don't know so much about that. I think there might be some title issues in Argentina, but it's not something I've heard people talk about. And, I get the sense that it's at least lesser than in other Latin American countries. I know in Mexico there's a lot of problems with title. But, yeah, I don't know if I can speak to that in too much detail without putting my foot in my mouth.


Russ Roberts: Okay. The other thing I want to mention, which you mentioned which I really like, is the Benjamin. The hundred dollar bill--which has Benjamin Franklin's picture on it and so they're called Benjamins--as you point out, most of us in America never see a hundred dollar bill. I've probably touched 10 in my life. Maybe. But, you said they're all over Argentina.

Devon Zuegel: Yeah. I've seen more hundred dollar bills in Argentina than I've ever seen in my whole life, by a very wide margin. There's a whole culture around hundred dollar bills.

So, for one thing people save in hundred dollar bills. Whenever we visit Argentina, my fiance's family will ask us to take out hundred dollar bills. Specifically, they want crisp hundred dollar bills. Ones that are not crisp, but they are a little torn or folded, they're worth less. You get less for your money on those. I've actually not totally sussed out exactly why that is. But, people like their dollar bills to be really crisp and clean. And, if they have a tear in them, people may not even accept them. And, we bring them down. It's good for us because when we're in Argentina we need pesos; so we'll give the hundred dollars bills to his family, his family will give us pesos; and it's a win-win situation.

Yeah. So, you just get stacks of hundred dollar bills. We've also had--some members of this family--well, some people--whenever Argentinians travel to the United States they also try to open bank accounts here so that they can store money here, which is legal. It's just not typical. And, most banks don't love it because they're kind of confused about what's going on. But, it's totally fine to do. And, a lot of people will open bank accounts here and then try to deposit their hundred dollars bills here so that they have their money sort of in a safe place.

And, Argentinians will often be anxious that when they try to give their dirty, raggedy $100 bills here, they won't be accepted. But, American banks don't care at all. They're like, 'Oh yeah, sure. Why not?'

And so, some friends came to visit several months ago and we, like, took them to the bank; and they were just shocked that they actually took all--they'd been collecting this box of ratty hundred dollar bills that they hadn't been able to give to the cueva or to anybody else in Argentina. And, they were finally able to offload them in the United States.

Another place--so, the one place where I've seen the most hundred dollar bills anywhere is actually at a cueva.

So, I was able to go to one of the biggest wholesaler cuevas in all of Buenos Aires last December. It's a wholesaler in the sense that it processes a bunch of cash for retail cuevas, which have smaller shops all around the city and all around the country. And so, this place had stacks of hundred dollars bills, like, almost to the ceiling. They were all wrapped in rubber bands. And, they have a whole system of couriers who have to bring the money around the city. You can always tell who they are because they'll be on a motorcycle in the middle of summer wearing a giant trench coat and the trench coat will be stuffed with hundred dollars bills all up and down. They also have these, like, custom belts that they wrapped around their bellies that are designed to hold stacks of hundred dollars bills. And, they're sweating like bullets biking through the streets of Argentina. But, you got to keep it covered up, otherwise people will see that you have hundred dollars bills. And, they'll usually hold--I asked them--they said it's usually about $80,000 on a person at any given time; and then they'll, like, move it around the city and deliver it places.

And so, anyways, yes. Hundred dollar bills are a big part of the culture of Argentina. It's very important.

Russ Roberts: But, Devon, a guy in a trench coat on a hot summer day is saying: 'I have $80,000 of cash on me.' Are they also--I assume they're armed. Don't they carry a weapon?

Devon Zuegel: I think the couriers may not be.

Russ Roberts: I would want one.

Devon Zuegel: That's a good question. They definitely get robbed. They have stories of getting robbed. Yeah. I don't know. I didn't think to ask that question, but I hope they do because it's a pretty dangerous job.


Russ Roberts: Yeah. Of course, hundred dollar bills have a long history in the United States, as well. You quote Edgar Feige, the economist, that hundred dollars bills make up 80% of all U.S. currency by value and 34% of all bills in circulation--is a puzzle of course, given that they make up about 1%--much less than 1%--of the bills that I've touched in my lifetime in America.

And so, where are they?

Well, they're in Argentina for starters--which is pleasant for Americans because those are green pieces of paper that are not coming back to make claims on U.S. goods and services. They're just being used for the store of value that's worth it to Argentinians. And that's pleasant for Americans.

But of course, in America they are used quite extensively for--not surprisingly--illegal transactions. Drug dealers and organized crime use hundred dollar bills in exactly the same way that Argentinians do. They've got to hide stuff from the government; they need to have a store of value; and it's much more pleasant to hold one hundred-dollar bill than a hundred ones. Otherwise, the stacks go through the ceiling and the suitcase has to be a trunk or a small U-Haul.

So, they're always a value for people who want to be avoided by the government. And sometimes it's criminals, and sometimes it's citizens of Argentina.

Devon Zuegel: I actually have a funny story about that. So, last December I invited a big group of friends, about 30 people, down to Argentina and we had a big dinner at one of the most expensive restaurants in the city. It ended up being, like, $40 per person in dollars. So, by U.S. standards, not terribly expensive, but super-expensive in Argentina. Very nice food.

And, something that the Argentinian government does--they like to pretend that there is no inflation. Everyone knows that there's inflation. You cannot hide it. But, the government has this sort of, like, doublethink--doublespeak--thing where they're, like, 'Oh no, no. There's no inflation.' And, one of the ways that they express this is by not printing larger denominations of bills. So, I believe the largest denomination is a thousand pesos. Which a thousand--what's the math there? That's worth, I think $3. Maybe it's ARS10,000 [Argentine pesos]. I don't know. It's not a terribly large amount of money. [? Arithmetic check: On Oct. 18, 2022, USD$1 = ARS152.52. That is, $1 U.S. dollar was equal to 152.52 Argentine pesos. Consequently, USD$3 = ARS457.56 in Argentine pesos. So, roughly a $30 dinner would cost ARS4575.60. Note: this back-of-the-envelope, current, calculation may not reflect the currency conversion rate when Zuegel was at that restaurant in Argentina.--Econlib Ed.]

Pile of Argentine pesos left for a $40 dinner. The 1000-peso bill is the largest denomination in Argentina.
View at full size

And so, all of our friends--we all had to pay for this dinner that we went to. It was, like, a $40 dinner. And, the pile of cash that we had to give the waiter just to, like, pay for this meal was a mountain. I could probably find a picture and send it to you later if you wanted to include it in the show notes.

And, everyone was just laughing. Like, this is so ridiculous. And, it's simply because the government does not want to admit that there's inflation. And, if they were to print a higher denomination bill, that would be strong evidence of inflation.

And, a related fun fact about this is that if you get any bill in Argentina and you smell it, you can smell that it's very fresh because it was probably just printed very recently. Because, the majority of bills have been printed in the last few years. This is how inflation and exponentials go, right? So, they're all very crisp and they smell nice, and they're all really good. You can always tell. If you get an old one it's kind of like, 'Oh wow. This has been around for a while. This used to be worth a lot of money, but it's not anymore.'


Russ Roberts: That's not funny. I apologize for laughing. But, I used to carry in my wallet--I don't think I have it anymore--but I used to carry in my wallet a trillion dollar--I think it was trillion--a trillion dollar Zimbabwe note, which I'm sure you can still buy on the Internet. Somebody gave it to me. I think it's worth whatever--a quarter or 50 cents or a dollar or something. I don't know if that was a joke or real.

But, the underlying phenomenon is tragic. And, I joked--not joked. I mentioned earlier people in post-World War I Germany--it was also true in post World War II Germany actually also--that wheelbarrows had to be used by people, the equivalent of a suitcase, to carry large amounts of the domestic currency to make an everyday purchase, because the inflation had made the prices so high in terms of the denomination that was available. And, yeah. I'm sure it was a big mountain.

Devon Zuegel: It really was.

One other aspect of inflation that I think that Americans really don't understand--and, like, I really did not understand until I spent time in Argentina--was that inflation propagates very unevenly.

So, our simplified economic model of inflation is, like, if there's 50% inflation in a year, now suddenly all the prices will be approximately 50% more.

But, that's actually not correct. Like, what ends up happening is very different. Some things end up going up in price much faster than others.

So, there's this sort of--you can see this in cooking. Any given week there might be some random thing that's very weirdly expensive and so suddenly people will just stop cooking with that item. Last time I was in Argentina, this item happened to be cheese. I don't have a model for why cheese was randomly expensive, but all I know is that, like, all the pasta that my fiance's family made for us that week had no cheese on it, just because suddenly cheese was five times more expensive than it normally would have been relative to other prices.

This also has some really harmful effects for individual people. Different types of jobs have much more pricing power in their wages. A rough rule of thumb that's useful is that as your wage is more a percentage of the prices that your boss sets, the better off you are. So, if you're a waiter and your tips are a percentage of prices, then the restaurant's owner is very motivated to update the prices as quickly as possible. But, they're less motivated to update your wage as quickly as possible. But, luckily if you have your tip as a percentage of the price, now you can capture some of that.

Russ Roberts: Yeah. You're insulated. That's a fantastic example. I love that.

Devon Zuegel: And, if you are on the opposite end of this equation--it would be someone like a retiree with a pension. So, there's a lot of people who have pensions. Let's say you retired in 1998. The value of your pension back then is completely worthless now. Like, you should not even plan on it.

A category that would be somewhere in the middle is something like architects or home contractors. This hits close to home because my fiance's parents are an architect and a contractor and they have some stories of, in the--I believe it was the hyperinflation of the late 1980s. They were building houses and there were some people who were supposed to pay them on a Monday and the people said, 'Oh sorry. Actually I'm out of town right now. I'm going to pay you on Friday.' And, by Friday that price that they had agreed on was completely worthless.

And, when you work for really large, big fixed fees like that, where you say, 'Here's my fee and you'll pay me six months in the future,' or even a week in the future, when you have hyperinflation, it can really affect what your effective income is.

So, long story short, there's just a lot of heterogeneity in the way that inflation will impact different people in the economy. And, some people will be really, really, really hurt in a way that other people will not be. And, it tends to harm people with less economic power much more than people with more options and more economic power.


Russ Roberts: Yeah. The point I was alluding to earlier at the very beginning of the conversation, I think I mentioned it, is that the problem with inflation is partly what you said, the fact that it's erratic in terms of its impact. Although some of that I think might be just be regular price fluctuations that are going to get exacerbated by the inflation rate, make it larger than it would be if there were no inflation in Argentina. I suspect that was a bad week for cheese--for some other reason. I'm not sure it was that inflation had a bad impact on cheese, say. It's hard to know.

But, the bigger problem is that you can't anticipate the magnitude of it. If inflation was steady, if it was high--high in America would be 25%, say, or 20% or even 50%. But, if you knew it was steady, then you could plan accordingly.

When you make a contract and I know that prices are going to be going up 100% a year, doubling, then when I make a contract for a year from now, I take that into account when I set my price and I don't get hurt. I only get hurt because--or the person on the other side of the contract only gets hurt--when the actual rate of inflation turns out to be different than was anticipated. Which of course is almost always the case. You can't accurately anticipate it.

So, it's a whole additional level of uncertainty that exists in international transactions all the time because currency rates fluctuate and people who transact in global markets have to anticipate that and often will insure against it. But, when it's in your domestic currency, you have to do some things that are very costly, like buying bricks or doing other things that have no real economic value and are simply done to insulate yourself from the worst downsides of unexpected price changes.

That's why it's such a fascinating--tragic, but fascinating--laboratory in how an economy works. When, as you were, in a situation--a physical place--where prices bite, where inflation bites, it's not just like: 'Oh, the cost the living's going up a little bit. Maybe I'll get a better raise next year when it comes time to adjust.' No. Your savings are wiped out. The work you did over the last six months turns out to be half of what you expected to get in return because prices have changed in terms of what you can do with the money that you get when the price comes due--the contract comes due.

So, really an amazing and tragic example of how money, which is a great lubricant for economic transactions, when it's abused, you get costs. And it's very sad.

Devon Zuegel: Yeah. Just to tie that up, at the beginning I joked that every dinner conversation in Argentina ends up on the topic of what to do about your money so it doesn't lose value. And, it's kind of funny, but it's also, if you think about it, it's really wasting the minds of generations of people. There's all these really smart people who are spending half of their brain just trying to figure out how to store their money so that they don't get wiped out tomorrow. It's just really tragic. I see all these really smart people who I love who could be doing so much more, but they're stuck in this cycle.

And so, I guess one last idea is that: I think it would be really excellent if Argentina, or Argentinians--not the government, because the government's probably not going to do this--could implicitly dollarize everything.

So, I mentioned that housing prices are priced in dollars. A few other big goods, some things like cars will be priced in dollars. If the entire economy could switch over to dollars or to crypto or something like that and just get out of the clutches of the government, they could finally escape this trap. This is something that the government is imposing on them.

And, I think that it is possible. There are countries that have done this. Ecuador also had a bunch of very serious inflation issues. And, I think it was in 2001, maybe 2000, they fully dollarized. That was actually triggered by the government because there had been a crisis. Maybe the Argentinian government could do it.

I would love to personally see like a bottoms-up change where people--and I think this is possible now maybe with remote work where more people are earning in dollars--I think little pockets of the Argentinian economy could dollarize or move to some other currency without the government's oversight. And, over time those little pockets could grow.

So, there's glimmers of hope, but it would take a lot of work; and I think maybe some big philanthropists could work on this problem. I think it would make a big difference.

Russ Roberts: Yeah, it's certainly--it's fascinating. And, I think the other part that's interesting--and again this came up indirectly in the conversation with--not indirectly: it came up directly in the conversation with Marc Andreessen recently--is that: You know, when you talk about cryptocurrency in a developed economy, people like to make fun of it. 'Oh you've got to remember the wallet number, and this and that. That's absurd. And, if you forget it, you lose all your money. This is a ridiculous idea.' It may a ridiculous idea, by the way. I remain agnostic on Bitcoin's future, and cryptocurrency-in-general's future.

But, it has a powerful role, potentially, to play in an economy like Argentina's, because the alternatives have their own problems that are quite horrifying. And the--what's fantastic for me in thinking about this, is that the market--and by the market, I mean voluntary, uncoerced, bottom-up activity--has begun to create an alternative that, in at least the Argentinian economy--and we had a great episode on the Venezuelan economy as well--where the crypto side of it is an end around to avoid being abused by your government. It's incredible.

Devon Zuegel: Yeah. And people do solve problems.

I mean, I think the optimistic case for Argentina is that it's filled with very smart people who understand a lot of things about how the world works. And so, as soon as they get out of traps like that, I think they can end up doing some pretty amazing things.

I also wouldn't be surprised if we ended up seeing a lot of financial innovation come out of Argentina. Because, these are people who live and breathe foreign exchange rates. Talking to most people in America about crypto, they get really confused just about foreign exchange rates between crypto and so on. Argentinians are like--my fiance says something hilarious. He says, 'You embrace the darkness. I was born in it.' And, in that sense, like, the Argentinians really understand these types of problems and I think it equips them to solve other types of problems in the future.

Russ Roberts: That's cool. Silver lining, anyway. That Venezuela episode, by the way, was with Jim Epstein. You can find it in our archive. Of course, we'll put up a links to all the other Bitcoin episodes.


Russ Roberts: Let's close with how the cuevas use crypto. Which is--you point out, a lot of times, they're using it behind the scenes because they don't want to be using pesos all the time. And, that their sophistication with crypto is perhaps reliant on--some young people may not be quite as trustworthy as they might hope. I don't know.

Devon Zuegel: Yeah. So, I should caveat this by saying my information is now six months out of date because I haven't been to Argentina since December, and I expect that things have--more than six months. Oh man, it's October. It's a bit out of date. It's nine months. I'll be going pretty soon again. And so, what I'm saying was true in December of 2021, and things have probably changed since then.

So, I alluded to before how the cuevas will have couriers on motorcycles moving money around the city. And, with the rise of crypto they no longer have to move all of their money physically. They can actually just move it over the wires. Which is great, because now there's no couriers who are going to get robbed and have to wear trench coats in the middle of the summer.

So, instead of moving U.S. dollars [USD], they can move USDC, or USDT [U.S. Tether Currency]--which is a different type of stablecoin, but, for the purposes of this conversation, very similar.

And, this has been great for them because it's reducing their costs of moving the money around, which can pass on to the customers better exchange rates.

They still cannot move pesos through wires. Although I think someone actually did make a peso stablecoin--which I joked is sort of the classic. It's not the most stable stablecoin. I'll just put it that way.

And so, they're able to put more money through wires.

They're also able to do international transactions much more easily.

So, if you think about it, when you go to a cueva in Argentina and you get a $100 bill, they had to get that from somewhere. And, historically a major source of dollars has been Uruguay, which is the country just, I guess, east of Argentina, across the river.

And, Uruguay has--it does not have a fixed exchange rate. It's much more liberalized than Argentina is. Much more sane economy in many ways. And, actually is an interesting source of reading, where it's, like, its history is pretty similar to Argentina's, but it ended up doing much better in some ways. So, anyway, that's a side note.

So, these cuevas had to cross the river to Uruguay, get the hundred dollars bills there, and then cross the river again illegally. That had a lot of risks. It's very time consuming. Now they're able to do many more of those transactions over the wire. So, this is great for cuevas.

However, something that was very concerning to me when I went and spoke with some cuevas last December doing some research for this project was realizing that they used Binance, which is a centralized app, to store their products--their cash and all their money. They have all their crypto inside of Binance.

And, for a moment I thought, 'Oh, maybe they're just temporarily putting it in Binance so they can transfer it to their customers to make this more easily. But then they have, like, a cold storage somewhere that is safer.'

But, they confirmed, like, 'No, no. We have all of our storage inside of Binance.'

And, as I poked more, I realized they didn't realize that Binance itself is not super-trustworthy. For one thing, it's just centralized. So, technically it's quite easy for Binance to take away the crypto if they want. But also, historically, people in the crypto ecosystem have pointed out issues with Binance, and a number of people, like, executives, have had a bunch of issues at Binance that make it less than trustworthy. I'll leave to the reader the exercise of looking up the articles for this.

But, like, I wouldn't want to sub-sort[?] millions of dollars in Binance. I don't think that's a good idea.

And, it kind of hit me that when I was in one of them, I wanted to try doing a crypto transaction with this guy just to see what it was like. And, to do it the lead--the manager in the cueva, who was an older professional guy who had been running it for a long time, he called to the back and this 17-year-old kid with a Binance app comes out and starts, like, exchanging the crypto with me.

And, you know, I'm sure he's a very bright young kid, but he is not running this business. It's kind of no skin off his back if something goes wrong. And, I do not think that he either knows or is, like, fully communicating to his manager exactly the risks of the technology that they've chosen.

What I would do if I were them, is have a hardware wallet or something else that no one else can touch; and put that in a safe and protect it immensely.

And, so, anyway, it was a long way of saying that I think the cuevas, at least in December, were doing something that I thought was really unsafe. And, I found it quite ironic given that Argentinians of all people should distrust centralized institutions like that. They've seen this happen before.

And, to them it seems to be that, like, they just mostly care that it's not the government; and it's not one of their local banks. And, it's probably a better bet than putting it in those institutions. But, I think they could do a lot better.

And, in the last nine months, with so many different crypto-exchanges failing and stablecoins getting unpegged, I'm wondering maybe when I go back this summer, maybe they've learned their lesson. But, I expect that at least some of them had to learn it the hard way.

Russ Roberts: Well, it sounds like an opportunity for you to open a cueva on your next trip back.

Devon Zuegel: There is probably a business opportunity there.

Russ Roberts: My guest today has been Devon Zuegel. Devon, thanks for being part of EconTalk.

Devon Zuegel: Thanks for having me. This was a fun conversation.

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