Argentina peso (ARS) could become the next Zimbabwe dollar | Invezz (9/28/23)
The Zimbabwe dollar is often seen as the poster child of bad macro and fiscal economic collapse. At its lowest moment, a 100 trillion Zimbabwe note was actually worthless. Today, these trillion-dollar notes are being sold in platforms Amazon.
The ZIM dollar collapse was attributed to the actions of Robert Mugabe, the then president, and the central bank. Facing heavy sanctions, the government turned to cash printing in a bid to fund its projects and welfare projects.
Cash printing leads to more money supply, leading to hyperinflation. At the worst period, Zimbabwe’s inflation surged to 3.13×109%, the highest on record. As a result, the middle class that existed decades ago disappeared and Zimbabwe became one of the poorest countries on earth.
Now, there are signs that Argentina, once a leading South American economy, is walking in the same footsteps as Zimbabwe. Like Zimbabwe, Argentina has consistently printed money to fund its ballooning deficit. In 2022, the country had a primary budget deficit of 2.4% while the financial deficit came in at 4.2%.
Argentina cash printing continues
Argentina could now be heading into hyperinflation ahead of the general election. In a statement, the economy minister who is also a presidential candidate announced a series of handouts that could make the situation worse.
All registered workers will receive the of $80 while informal workers and retirees will receive $125 and $49. The scheme will cost about 1.3% of GDP and will be funded by cash printing. Another handout will see the government raise the income tax threshold to 1% from the previous 7%.
Therefore, adding more Argentina pesos in an economy where inflation is soaring could lead to more challenges. The most recent data showed that the headline consumer inflation rose by 12.4% in August, the highest point since 1991 when the country was moving from hyperinflation. Inflation rose by over 124.4% on a YoY basis in August.
The challenge for Argentina is that it has no plan to exit this economic crisis. The ruling party is committed to continuing with the socialist policies that have brought it to its knees. On the other hand, the right wing candidate has pledged to get rid of the Argentina peso and replace it with the US dollar.
To a large extent, replacing the now-worthless Argentina peso with the US dollar makes sense. However, the reality is that implementing it will not be easy since the government needs to have resources to acquire the dollar.
It is hard to solve the Argentinian economy crisis. For one, solving the crisis would need to get rid of most welfare programs, raise some taxes, raise interest rates, and reduce the bureaucracy that reduces foreign investments. Scrapping these social programs would be unpopular.
Therefore, we can’t rule out a situation where the Argentina peso crashes hard in the coming months. The official has surged to 350 from 36 in 2018. The unofficial rate is much higher than the official one.
Iran Starts Using Newly-unblocked Assets In Qatar | Iran Front Page (9/28/23)
Tehran and Doha have agreed a mechanism that allows Iran to tap into funds recently unfrozen and deposited into bank accounts in Qatar as part of an agreement with the United States.
Central Bank of Iran (CBI) Governor Mohammad-Reza Farzin and Qatar’s top banker Sheikh Bandar bin Mohammed bin Saoud Al Thani reached an agreement in Doha on Wednesday to start banking operations to use the funds transferred to Iranian bank accounts in Qatar earlier this month, a CBI statement said.
The statement added the agreement was reached as part of a broader discussion between Farzin and Sheikh Bandar to boost banking cooperation between Iran and Qatar.
Farzin stated on September 18 that some 5.573 billion euros of Iran’s foreign assets had been successfully transferred to accounts held by six Iranian banks in Qatar’s Ahlibank and Dukhan Bank.
The transfer took place under a Qatari-mediated deal between Iran and the US whereby the US agreed to lift sanctions on Iranian funds that had remained blocked in two South Korean banks since 2018. The two sides also exchanged prisoners as part of their deal.
Qatar paid for banking fees related to the change and transfer of the funds from South Korea via Swiss National Bank to Qatari banks.
The CBI statement identified the six Iranian banks holding accounts in Qatar for the purpose of processing the unfrozen funds as Keshavarzi, Saman, Pasargad, Gardeshgari, Shahr and Karafarin.
Iranian authorities have indicated in previous statements that they will use the newly-unfrozen funds in Qatar for purchase of non-sanctioned goods, including for imports of animal feed for which Iran spends billions of dollars each year.
Source: Dinar Recaps
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