On May 4, Argentina's central bank banned payment providers from offering and accepting crypto. Payment providers now fall under the same rule as financial institutions in the country. It appears to be a form of 'capital control' - but it won't prevent Argentinians from owning crypto. 

The central bank issued this statement: "Payment service providers that offer payment accounts [...] may not carry out or facilitate operations with digital assets, including crypto assets, that are not regulated by the competent national authority and authorized by the Central Bank". As no crypto coins are regulated, this means that no crypto can be bought from payment service providers.  

An example of such a platform that allowed payments in Bitcoin and a few other coins is Mercado Libre, the 'Amazon of Latin America'.

A history of inflationary episodes

In the past decades, Argentina has experienced multiple episodes of hyperinflation of its currency the Peso, crushing the value of people's savings. Early this year, the year-on-year inflation surpassed 100%. In April, Bitcoin hit a new all-time high versus the Peso (see graph). Considering this, it's no wonder that Argentina is in the top 15 countries adopting crypto.

Capital controls

This new rule by the Argentinian central bank is a form of capital control. Capital controls are measures taken by governments to restrict or regulate the flow of capital in and out of a country. In 2019, Argentina implemented capital controls to deal with its ongoing economic crisis and protect the Peso. The government restricted the purchase of dollars and limited the amount of money that could be transferred abroad. 

The bottom line is that Argentinians don't trust their own currency as a store of value and flee to different currencies. The country can try to block a few onramps to crypto but a total ban of crypto can't really be enforced. Other countries, like China, have tried and failed. 

Only in Argentina?

Before you think: this can't happen in Western countries, be aware that it has often happened here too. In 1933, the American government banned citizens from owning gold. The country was on a gold standard and couldn't print more dollars without increasing its gold reserves. After the masses handed over their gold coins, the dollar was devalued against gold and could be printed again. 

Considering the current banking crisis in the US, some analysts believe it's not unthinkable that the US government will impose withdrawal limits on bank deposits. This could be a measure of last resort to save the banking system from bleeding out.

Far from threatening crypto, capital controls like in Argentina prove the point that crypto is seen as a viable alternative - even by the government. Otherwise, why would they bother trying to ban people from using it?