Por su inflación galopante, Argentina no imprime billetes menores a $500 desde el 2020

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Buenos Aires — Four Argentine banks, and which requested not to be named, have confirmed to Bloomberg Línea that they have recently had to build new vaults and warehouses in the interior of the country, or have had to optimize already existing space, to make room for the surplus pesos they have to store.

In a context in which the largest denomination banknote in Argentina is equivalent to approximately $3, and in which money issuance continues to increase, banks have to store more and more banknotes. This was not always the case, however. Only five years ago, when they were first issued, 1,000-peso bills were equivalent to about $54, but since then they have lost their purchasing power.

That reality, in an economy that is still highly informal, can be a real nuisance. Not only for a society that is sometimes forced to circulate with bundles of money, with the risks that this entails, but also for businesses and banks.

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Record banknote circulation

According to data from the Argentine central bank (BCRA), the number of banknotes in circulation this month reached a record 8.06 billion, and of those, 3.08 billion, or 38%, are 1,000-peso bill - which last year became the most widely circulated banknote in the country - and 1.34 billion, or 16%, are 500-peso bills.

These are the only Argentine bills that are still worth more than one US dollar measured at the free exchange rate.

All the rest, that is, the 10-, 20-, 50-, 100- and 200-peso bills, add up to a total of 3.63 billion, and which are the banknotes that banks already qualify as “low denomination”, and which are causing them a headache in view of the government’s refusal to issue higher denomination bills.

The government’s economic team usually argues that the decision not to issue higher denomination banknotes is based, firstly, on the fact that they seek to encourage the digitization of payments, and secondly, because by doing so, they avoid facilitating informal transactions linked to tax evasion or illicit acts. This last argument, it should be recalled, was used by the European Central Bank (ECB) when it decided to stop issuing 500-euro banknotes.

More vaults and optimization of storage space

During the first half of 2022, a report by the Argentine Banking Association (Adeba) clearly showed how banks were affected by the excess of pesos. In March, 900 billion pesos ($5 billion) were withdrawn from ATMs, while over-the-counter withdrawals at branches amounted to another 600 billion pesos. Those 1.5 trillion pesos, they explained, was equivalent to 1.5 trillion 1,000-peso bills.

“To get an idea of the magnitude of these figures, it is enough to mention that, with the bills withdrawn from banks and ATMs, 1.5 Olympic swimming pools could be filled with 1,000-peso bills,” according to Adeba. Those 1.5 trillion banknotes, the association added, weigh 1,500 tons.

At that time, the number of pesos in circulation amounted to 7.36 billion, 8% below current levels, so the problem has only worsened.

Of the four Argentine banks that acknowledged to Bloomberg Línea that they had to build new vaults and deposits in the interior of the country or that they had to optimize spaces to make room for the surplus of pesos, one of them said the amount of banknotes represents a problem, since it not only complicates people’s lives, but also increases the costs of transporting cash and increases the need for storage space.

Banks not only have more money in real terms, but a greater volume of money in terms of cubic meters.

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Pallets full of 100-peso bills

Another bank acknowledged the same problem, and said it has pallets full of 100-peso bills in its vaults, which they receive as deposits, but that it is not convenient for them to use them to recharge its ATMs, since it is not profitable to do so.

According to the bank, it is already reloading its ATMs up to three times a day, but given the limit of withdrawals, the only way to make the process more efficient is to load them with 1,000-peso bills or, failing that, with 500-peso bills.

Due to the volume of banknotes involved, a third bank said, generates a need to expand storage space, as well as invest in machines to manage the currency.

In order to dispose of the low-denomination bills that are not absorbed by the central bank, banks are assuming the cost of sending remittances, and which generates expenses such as logistics costs.

Banks’ stored banknotes now supersede the amount they keep in custody on behalf of the BCRA, and which in 2022 increased by 17% with respect to the previous year, with space assigned to such storage totaling 900 cubic meters.

As the BCRA is not able to absorb all the physical banknotes as deposits, they are stored by other banks, despite it appearing on balance sheets as having been deposited in the BCRA, and which has obligated banks to expand their storage space.

A fourth bank consulted by Bloomberg Línea described the current situation of cash accumulation as “critical”, adding that 40% of the money stored comprises low-denomination bills that no longer perform efficiently in ATMs, given the limits on the amount of bills they can issue per transaction.

The banks said that one solution to the problem is to encourage their customers to adopt the different digital money tools in order to reduce the use of cash, while working to minimize costs and optimize space.

Possible solutions

Sources consulted within the banking sector say the use of cash continues to increase month by month, which raises banks’ transportation and storage costs, and argue that one measure to alleviate the problem would be to issue higher denomination banknotes, as has been demanded by the banking association.

Inflation, they point out, has made the second most abundant banknote, the 100-peso bill, of little use, since it cannot be placed in ATMs due to the space it occupies, and fewer and fewer people accept them, and that, in many cases, the BCRA does not accept them because it does not have the sufficient capacity to destroy them.

For this reason, and in view of the government’s refusal to put higher denomination bills into circulation, banks are proposing other palliative measures, such as removing or lowering the so-called “check tax” on payments and electronic transfers under 200,000 pesos, as well as ceasing the charging of taxes on card use in order to encourage their use, or to allow banks to charge cash management for deposits over one million pesos per month and withdrawals of over 500,000 pesos, measure that, the banks believe, would encourage businesses to use more electronic means of payment.

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A highly informal economy

Although the pandemic has significantly accelerated the use of digital payments in Argentina, the use of such payment methods still needs to be increased. However, due to the highly informal nature of the economy, it is difficult to estimate how many transactions are made with cash, with estimates putting the figure at eight out of 10 transactions.

A recent study by Mercado Pago, The Digitization of SMEs in Argentina, published in November, estimates that 50% of the invoicing by small and medium-sized companies in the country are payments received in cash.

For economist Fausto Spotorno, director of economic and financial research of the consulting firm OJF & Asociados, Argentina continues to have an economy with a high use of cash because digital systems are very expensive. This, he explains, is due to two reasons: commissions, and the tax burden that weighs on digital wallets.

The amount of taxes in Argentina, including national, provincial and municipal, says Spotorno, “totally distorts the use of digital payment for commercial transactions”. For this reason, he says, the use of the digital system cannot be expected to grow when it is so punished by taxes.

He added that the use of cash “generates a very high cost for banks due to the cost associated with transferring and moving money”. But, for Spotorno, the high logistical cost of having small bills in circulation, in relation to the fact that five of the seven bills in circulation are equivalent to less than $1 at the parallel exchange rate, affects both the financial and private systems.

“The circulation of money outside the banks is about 10 times bigger than what is in the banks. That is why it is also an issue for companies. On the street there are practically 4 trillion pesos in circulation that are not in the banks,” he said, and that “the highest denomination banknote in Argentina today should be in the order of 50,000 pesos, especially if we consider that in a year’s time inflation will probably be 100%”.

A boom in money-counting machines

One of the most common methods that Argentine retailers have found in recent months to deal with this problem has been the purchase of banknote-processing machines.

Bloomberg Línea has learned that, after soaring in the last quarter of 2021, sales of bill counters through electronic channels remained high during the last 12 months, with peaks between the months of May and August, the months in which inflation accelerated and exceeded levels of 7% per month.

A company dedicated to the rental and sale of banknote processors told Bloomberg Línea that demand for the machines shot up toward the end of 2021 and was sustained during 2022, with higher demand from people who had not previously sought out such a product.