Another record in Argentina creates “desperate” problems for banks, which no longer know what to do

Country/GDA
Although inflation Slowdown in recent months Central Bank (BCRA) Introducing a higher denomination note (10,000 Argentine pesos) Argentine Economy The amount of banknotes in circulation continues to break records each week. This poses a problem for banks. Its coffers cannot cope.

According to the latest report from the monetary authority, Argentina There are 11.859 billion banknotes on the street; that is, nearly 12 tons of banknotes. This is equivalent to about 20% more than the number of banknotes in circulation in December last year (9.92 billion) and twice the number of banknotes in circulation in December 2019 (5.242 billion).

In total they are 258 tickets per residentThis is excessive compared to the average population of 68. Chile65 of Europa or 35 Brazilaccording to the situation. Uruguay At the end of May, there were 175.2 million banknotes in circulation (according to central bank data), which means that the average person held 51 banknotes.

“People used to come to the bank with backpacks full of pesos to deposit money. Then he started coming with suitcases. continuenow it is equipped directly with 23 kg, placed in the (aircraft) cargo hold. “Everyone wants to get rid of small-denomination banknotes,” they described in the bank. For the bank branch manager, the situation is “desperate”.

However, this unusual dynamic is not new. It began during the second administration. Cristina Fernandez de Kirchnerwhen the former president banned the issuance of larger denominations of banknotes to deny the economy an accelerated pace inflationdespite the fact that it was already deteriorating the purchasing power of the peso. At the end of his administration, the 100 Argentine peso banknote accounted for 70% of the total in circulation.

This situation occurred repeatedly during the period of the Republic of China. Alberto Fernandezit was also decided to postpone the printing of larger denominations of banknotes, and only introduced the 2,000 Argentine peso note nine months before the end of the government, despite the fact that inflation More than 200% year-on-year.

Currently, although the current government Javier Miley Despite the introduction of the 10,000 Argentine peso note and confirmation that the 20,000 Argentine peso note will enter circulation in October, banks are still facing the same problem of a lack of space to store obsolete banknotes.

“We are pleased to update you on the complexities facing financial institutions in cash management,” the bankers’ chamber said in its last letter to the central bank on July 15. It was the third letter sent in the past seven months. Argentine Banking Association (ABA, foreign banking) Argentine Banking Association (Adeba, National Bank) and Professional Bankers Association (Shinzo Abe).

Banking entities usually emphasize that “in a normal country” surplus pesos would be kept in the state treasury. BCRAbut since the monetary authorities had no storage space, they delegated this function to the banks. These people, in turn, had to find new places to store the documents.

It is estimated that from 2020 to date, they have built 10 large vaults (colloquially known as sarcophagi in the department) at a cost of $4 million each because of the security measures they had to take, and an additional 100 smaller vaults at a cost of $4 million each. $1 million.

Yet despite this investment, banks once again ran out of space to store banknotes, a situation that became exacerbated with the introduction of the 10,000 Argentine Peso note, although this may seem counterintuitive. This is because, with the introduction of larger denominations, the 1000 Argentine Peso note became less attractive and lost some of its demand.

The 1,000 Argentine peso note, which is worth almost $1 at the official exchange rate and $0.70 at the parallel exchange rate, currently accounts for 52% of all notes in circulation. Although it has not reached the 70% share of the 100 Argentine peso in 2015, it has broken all records in terms of units, with 6.212 billion notes in circulation (the maximum print run of the 100 Argentine peso was 4.229 billion).

In light of this situation, the central bank installed two more destruction machines last year to speed up the process of destroying unused banknotes. This brings the total number of machines installed to three, two in Retiro, two in Casa de Moneda and one in Santiago del Estero, with a total recycling capacity of more than 2 billion per year. However, the machines are not operating at full capacity.

“Now, all the bonuses and salaries that were spent on vacations are back in the branches. Most importantly, the return of the 1,000 Argentine peso note, which was the most common but is no longer in demand because people prefer to keep the 10,000 Argentine peso note. The arrival of the larger denomination note is essential, but we need to remove the 1,000 Argentine peso note from the market faster because We no longer have room to store it.“, they said at one of the largest private banks in the country.

Given this situation, these entities asked BCRA to relax some regulations to speed up the process of destroying banknotes. There are five quality categories for banknotes. “One” means very good condition (“brand new”); “two or three” is in circulation condition, and “four or five” is in destruction condition.

The BCRA stepped up its pace and made regulations more flexible to allow for faster destruction of the 100, 200 and 500 Argentine pesos, and guaranteed that the same destruction would be done for the 1,000 Argentine pesos when the 20,000 Argentine pesos were issued. While this has greatly eased the situation for the 100 Argentine pesos, there are still 1.024 billion in circulation (8.6% of the circulation), almost the same as the 2000 Argentine pesos (1.1 billion).

The bank claims that 80% of ATMs can already dispense the 10,000 Argentine peso note, although they have not yet been adapted to accept deposits. This is due to the security process that the software must perform to detect that the note is not a counterfeit.

Photo: AFP

“It has become easier to set up the cassette machine to deliver the bills. In fact, 10,000 Argentine pesos can be deposited in an ATM in less than four months, while 2,000 Argentine pesos takes six months. But setting up the banknote acceptor takes more time. The software that must be installed on the machine undergoes many security tests on the new banknotes in different states of quality before it can be used,” they explain.

In order to expand the number of access points to the financial system and simplify the processes of withdrawing and depositing funds, the BCRA this month allowed banks to entrust the possibility of performing certain operations to complementary institutions (see separate content).

“In the city of Buenos Aires this may seem a bit ridiculous, but in the interior it is necessary because there are not enough banks or ATMs. The measure is intended to make people’s lives easier,” they explained in the monetary entity.

BCRA’s Communication “A” 8069 Restores Old Norms for Asset Management Federico Stutzinger in the entity. “To open one of these complementary institutions, it is not necessary to obtain authorization from the BCRA; you only need to give 60 days’ notice of the opening agreement. Due to anti-money laundering control issues, only pesos can be operated and the amount that can be deposited in cash is limited to three times the minimum wage. If the banks wish, they will be able to delegate to these branches the option of opening or closing bank accounts,” they give as an example in the BCRA.