An Open Letter for Maria Delfina Rossi
Hello, y buen dia, Yesterday I read on my favorite Buenos Aires expat blog, Bubblear, than you just scored an amazing job. Congratulations, and don’t waste too much time reading naysayer comments. This job is going to put you under public scrutiny, and it’ll be uncomfortable but if you keep a clear head and watch your words in the press, you’ll be ok.
You and I have a lot in common, we’re both children of privelidge, we both have an international perspective, like moneyed nomads we have spent much of our adult life living in various countries, and in a sense our individuality is a bi-product of not feeling constrained by borders or currencies. And we both love finance, we both want to be excellent at what we do, and reach our 40s with a sense that we were responsible for making things better for the societies we inhabit.
People will complain that you don’t deserve your position. That your series of academic accolades tower in excess while young people can’t get the first degree because of broken education systems. They’ll mention your family, it’ll start to get personal. Some may even argue that your age puts you at odd angles to your peers, or disqualifies you.
Forget about that. Your age and rigorous academic background probably puts you at a higher level of qualification than 70% of the staff in all the regulatory organizations, commercial banks, and the central bank, 70% being a conservative estimate. Focus on the math, focus on the system dynamics. This is a rare opportunity for the slow wheel of socio-economic progress to skip a 15 year generational lag. You can combine elegant models backed by thought-through computer science with political diplomacy to seed the next boom for Argentina.
Argentina is in a lot of trouble. Rationalizing the whys and hows of the possible solutions is probably also part of your job description a little bit, and this will cause cognitive dissonance. But I think being from the outside most of your life, knowing what a developed country is like, it’s clear that Argentina is in trouble in part because of mistakes made in monetary policy. I’m not going so far as to say fiscal policy: I once stood with my children in the hood during a boy’s birthday party, sipping non-brand cola, and saw “Cristina es Pueblo” graphitti’d on a cement wall across the broken-up parking lot of the projects - two of the buildings had been recently painted, but the other two had not. I get it, but at what price must the pueblo be nurtured? Does it really have to come to perpetual capital controls, high inflation, and net-revenue-negative attempts at surveillance in pursuit of tax collection? Decentralized money is here. Bitcoin’s usage in Argentina is among the highest in the world when it comes to non-speculative usage volumes. A small population relies on it to bring money into the country. Now those two sentences together may sound funny, this technology is where the internet was in 1995 when it comes to adoption the technogists claim. Meanwhile in conventional banking in Argentina, all the revenues come from fees and credit card interest, there is more revenue earned by mildly-professional shadow bankers who earn trading spread on foreign cash or surrogates such as the contado con liquidacion. Conventional lending is next to impossible because the interest rates are too expensive and inflation is unpredictable. Collateralized business credit is the most plausible aspect, but the reality is most businesses in Argentina need to operate at least partially en negro because so much of their margin is eaten by the loss of official exchange rates and punitive taxes meant to compensate for under-collection (similar dilemma in Greece, albiet the opposite monetary context). The net result of a dysfunctional commercial banking environment is that most of the money supply remains in cash. Why do you think the US can get away with quantitative easing but when the BRCA-as-government-puppet takes the money supply up by 400% the pero loses 80% of its value? Meanwhile the dollar gets even stronger! How unfair is that? It’s because your home currency has very little inverse-pyramid-scheme working for it in banking, and the US Dollar has been adopted as the basis for moeny creation internationally via derivatives and subsidiary-cycling in what was archaically named the “eurodollar system”. For academic-level depth on the subject I highly recommend reading Jeff Schieder at Alhambra Investment Partners. Bottom line, the pyramid for dollars is so massive, it denominates notional liabilities for swaps that total hundreds of trillions of dollars. How’s that Chinese Yuan Swap that brought the BRCA’s reserves back above 30 billion working? The Chinese Central Bank recently also threw in the towel against pegging to a currency that is starkly appreciating due to its scarcity from the unwinding of those epic net-liabilities. Argentina’s story for the last 13 years since the last major crisis is one of going their own way, trying manifest what Noam Chomsky called “the threat of a good example” that might rebuke the gifts of the Washington consensus which is ultimately about making the world safe for international banks to earn spreads creating “dollars” through derivatives. And then after Nestor passed the torch to his wife, it was less about manifesting and more about sisters doing it for themselves. (That was a song from the 80s, I’m also too young for that, I heard it referenced on Orange is the New Black.) Social justice became the mode and the rhetoric, the Argentina government took the mantle of an developmental NGO with a spy agency, a tax collection database, and a printing press. I lived in Argentina throughout the process, I saw it work, and I saw it reach diminishing returns. Seriously bad investments, such as factories whose profit margins depend on tariffs and import restrictions, were made in the name of social justice.
Today Argentina faces the same reckless inflation that had precluded any economic growth for almost 30 years, a period of tumult that made even Carlos Menem and dollar-pegging look good. Now, after 11 years of healthy growth from a very different model, and 2 years with slow growth teetering on recession, there is a risk the bad times will return. There’s a solution for that. Argentina is prevented from paying its debt and potentially get back into the global capital markets, because a Judge said no, and that’s how the old banking system works, a single Judge can legally block a soveriegn nation from paying a coupon. There’s a solution for that. The Argentine government will very likely remain Peronist for the duration of your position, the odds that Argentina will vote for a guy who thinks it’s cool to make cat calls seem low. That kind of Donald Trump stuff only really plays to red-blooded North Americans I guess. Social justice as a fiscal policy objective is going to remain on the agenda, but how will it be paid for? There’s a solution for that too. And how about giving Argentine banks a predictable inflation rate and a stable basis to lend against the rich collateral that exists in Argentina’s farms and real estate? How about simultaneously extending those services to those who are underbanked, or whose homes are unregistered? What could be better than getting banking services into the cheap Android phones of Villeros?
Well I won’t disappoint there either.
You must spend 100 hours of research, when you can budget the time, but regulary, to catching up with the open source and licensed software available that would enable all these solutions. Mostly decentralized technology like the Bitcoin protocol won’t vibe with bank AML policies, nor can banks hold bitcoins on their balance sheets as an asset due to the unknown counterparty risk of its decentralized ledger being secured by a network of psuedonymous data-centers. But you can check out Hyperledger, Ripple, and Tendermint, those can satisfy regulatory requirements for KYC and bank participation.
Now that you know there are a spectrum of blockchains that are more or less decentralized, and on the semi-centralized side there are tools that fit into your regulatory framework, consider applications: - Small business and personal credit can be issued and traded just between banks (Ripple, Hyperledger) or also open to public participation (Tendermint, Omnilayer over Bitcoin, Counterparty over Bitcoin, Ethereum). Originate-to-distribute can bring international capital through the back-door at the level of secured debt.
- The immense wealth of the nation’s private persons, farmland and residential real estate, should have a simple regulatory structure for Trusts to purchase and legally hold, then allowing issuance of securities to international investors. Alternately individuals can remain title holders and you can securitize or hold home equity lines. This will give the Argentine middle class liquidity again, but how to incentivize that they invest in Argentina?
- Begin the issuance of ARS on a blockchain admitting Argentine banks as consensus hubs and registered persons as participants. Then you can have fungible pesos moving around in irreversible and highly trackable transactions digitally using any medium including smart phones. Because of ID registries associated to the bank accounts of the Argentines using that payment method, the money can be either canceled/re-issued (in the case of permissioned ledgers) or backed-up (in the case of more pure cryptographic ledgers) so the risk of cash theft can be elimated from many people’s lives. The additional benefits include: 1) Standardization of interest rates in a liquid and transparent market.
2) Taxes can be accounted for and in some cases such as IVA, immediately collected using a decentralized application plugged into your permissions hierarchy. Yes, I’m giving you the keys to go tax people more effectively, the flipside to that is taxes beyond IVA must have a lower rate, a rate designed to anticipate >90% collection rates in the future, but only for income accountable on the decentralized ledger. The money saved in IVA by paying in cash can eventually become less attractive than the yields, efficiency, tax savings and credit those tax receipts qualify one for if using the open ledger. If it just looks like an invitation to harassment from AFIP it won’t catch on, it must offer a very healthy and long-term carrot, then the net result can be revenue-positive for the government and the people.
3) The standardization and cost-reduction in social programs adminstered by the government.
- Let Villeros own their property, using the same ledgers as a document registry. Start-ups like iNation or BitNation are offering technology in this direction. This will enable more credit (you’d be surprised what some of the Villa houses in Puerto Madero would be worth) and cut down on crime. Additionally, such a document registry makes banking administration cheaper and less error prone, and this applies also to the full spectrum of government tramites.
- Argentine banks and the government can issue debt that is distributed to holders of corresponding bond-tokens on a given blockchain. The government could use one of the above protocols to issue those tokens to all restructured bond holders today and then pay the last year’s coupons for transaction fees totaling .025 USD per recipient. The dollar payments can be made in something like Tether, which issues dollars on the Bitcoin blockchain backed by a Trust in Taiwan, or by on-blockchain Eurodollars issued against a smart contract hedge. Eris Industries structured contract framework might be a good place to look. Another angle, by forking Ethereum’s virtual machine software, it would be possible for Javascript-based applications to run on the Argentina-specific blockchain. Then bank employees could take existing code or develop directly and make a contract backed by pesos to hedge the dollar price of real estate assets, and thus back the issue of dollars on the national blockchain with soil, the constituion’s protections on private property and the robustness of Trust charter law.
As long as there is fungibility between the national synthetic dollars and dollars on other blockchains through a liquid swap market, which may well penalize the nationally based dollars a few points, then the bond holders can eat sandwiches with that money.
The long term adjustments away from the current model of paying 6 pesos for soy dollars when the convertability value is over 15 is out of your hands. But these ideas will help banks convert more of the economy into peso transactions. A healthy banking sector requires widespread use of digital money, can help lead the country towards a scenario where deficits are filled by more broadly collected taxes at a reasonable rate, and money supply growth can come from the keyboard over the printing press. But if you fail to create those conditions from the inside, if the flogging continues to slide convertability towards 20, with blue and official rates rushing to catch up, the population of Argentina can still use the decentralized technology to evade taxes, evade losses from devaluation, and continue the general flight of capital out of the country.
The amount of cash dollars Portenos alone have under their matresses is proportional to the Qatari Soveriegn Wealth Fund, but of the crowdsourced variety.
Let that crowdsourced SWF work for you. Give them a convenient alternative with a transparent deal and no regulatory ambiguity. I know you can’t control all those variables, but you can start conversations. Offering Banco Nacion customers products like those described here can trigger a chain of easy career moves for other smart people in these institutions that will culminate in Argentina being again, the richest country in South America.