Argentina recently imposed a new 35% tax on all purchases made in US Dollars. This new dollar tax could prove to be a boon for stablecoins pegged to USD, like DAI, which saw trading volumes rise after the news.
The extensive demand for US Dollar
The central bank of Argentina is having a tough time keeping up with the country’s rising demand for US dollars. Argentines are hoarding US dollars because of the high rate of inflation in the local currency which has made the central bank take drastic measures. To combat the spike, it introduced the new 35%-dollar tax.
However, the citizens have already found an option for this move. Soon after the move was announced, the stablecoin coin experienced a spike in its trading volumes. The decentralized stablecoin being run on the Ethereum network has become a favorite amongst Argentines who want a good alternative for US dollars.
The demand for US dollars increased by a whopping 900% this year and the central bank monopolized its supply. Data from tech news site iProUp suggests that the number of people buying US dollars increased from 435,000 in April 2020 to 5 million in August.
Dollars curbs necessary for the nation
Economist partner at Argentine firm FM&A Fernando Marull said that the consequences of not curbing this high demand for US dollars could prove to be disastrous for the country. The Argentine central bank could have to distribute $1.1 billion in USD per month. Given the dollar reserves of $8 billion in August, moves to cut dollar demand is essential. If not, the net USD reserves could drop to just $3 billion by December and will be zero by April 2021.
In an official press release, the Central Bank of Argentina noted,
“The initiative aims to maintain the current quota of $200 per month while discouraging the demand for foreign currency made by individuals for hoarding purposes and card expenses.”
The Argentine President later noted that dollars are not for savings but for productivity.