Argentina’s peso is a meme coin pretending to be a real currency
It’s possible that the Milei crypto scandal accelerates dollarization
Last Friday, President Milei promoted the $Libra cryptocurrency on his personal Twitter account. Thousands of people bought in, but the early owners sold, and the currency crashed. This sort of “rug pull” scam happens regularly online but usually does not occur using the social media account of a world leader.
Over the course of the coming weeks, we’ll learn more about the individuals behind $Libra. Milei has promised a full investigation. Lawyers, judges, and the Argentine Congress are all investigating. Articles of impeachment are being considered, though they are unlikely to move forward. International, crypto-obsessed tech journalists will dig deep into the event to identify exactly how it went wrong. I could have written about all that today, but I think the economic fallout is more interesting.
In modern politics, this sort of cryptocurrency scandal could have hit any country with a leader gullible enough to promote crypto on social media. But it hits differently in Argentina than it would anywhere else. Argentina’s stock market fell by over 5%. When Trump promoted a meme coin in the US and made money off the rug pull, it barely moved the media cycle for longer than a day. In contrast, the Milei scandal is the top news story in the local media, and that will stick for days, if not weeks, to come.
Why? I would argue that the scandal resonates in part because Argentina’s economy is based around a currency that functions much like a meme coin.
To live and work in Argentina is to have the equivalent of a PhD in theoretical economics where wacky things happen. Prior to this scandal, the entire country had been awaiting news of a potential IMF deal to prop up the peso for a few more months while currency controls are dropped. People across Argentina use the peso to buy and sell while believing that the price may some day drop to zero. The country’s history means the population understands what it’s like to have a currency crash and to regularly use a currency with an ephemeral value in a way that few others do.
That means the country is more primed to understand crypto than any other country on Earth. There are crypto ads all over Buenos Aires because using crypto makes sense in a place where the local markets are illogical. Over the past decade, there have been months of economic crisis when Bitcoin and Ethereum prices have been more stable than the Argentine peso. Doubts about the peso make the country one of the biggest users in the world of Tether, a stablecoin linked to the US dollar.
Milei implicitly understood that Argentina’s peso lacked real value while campaigning in 2023. His promises of dollarization were well-received in a country where people experiment with crypto as a potential safety net and quietly hoard dollars awaiting the next peso crash. When he threatened to use a chainsaw on the Central Bank, citizens only paused to wonder whether he meant it figuratively or literally, not whether it was a good idea.
Given that a majority of voters endorsed Milei’s unorthodox economic proposals when they voted in 2023, I don’t think Milei will be impeached over this scandal. Whether this scandal impacts his popularity by more than a few points depends on how he responds to the allegations of corruption - how close he was to the backers of the meme coin and whether he profited from it - not the fact that he promoted something like this online. The immediate impact will also be limited by the fact that more foreigners bought into the coin than Argentines.
Instead, due to everything I wrote above, I think the real impact of $Libra could be an acceleration of dropping currency controls on the peso and potentially moving towards dollarization. Instead of being tamed by the scandal, the president is going to see the rise and fall of the meme coin as a signal of market demand for him to do something radical but real. It will convince him to press forward and demonstrate that he can deliver the solutions that his voters want.
The idea that this scandal pushes currency reforms and even dollarization rather than slowing it down is counterintuitive. This is a scandal that would cause most politicians to take a breather. But Argentina’s president is Javier “Viva La Libertad Carajo” Milei. He’s going to do the opposite of what a normal politician might do because he’s generally been rewarded when he has in the past.
Milei was supposed to travel this week to the United States to meet with President Trump and try to get support for an IMF package that will back his efforts to drop currency controls. Last week, I wrote in World Politics Review that Milei is using Argentina’s giant debt with the IMF to obtain leverage in those negotiations. Milei will not be deterred from pressing forward and considering even more radical solutions. What should now concern the IMF is that Milei’s next announcement on social media will pull the rug on Argentina’s peso.
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A post about meme coins needs memes
