The current higher denomination bill is enough to buy fewer things, something aggravated by inflation of 7.7% per month. What maximum value is already needed
By Mariano Jaimovich
16/04/2023 – 19,14hs
He $1,000 bill is no longer enough to buy almost nothing and the maximum denomination figure of $2,000 that the Government plans to place on the street in the coming months does not cover current consumption, such as a kilo of a certain cut of meat or cheese, or a kilo of artisanal ice cream. A fact that is confirmed with the very high levels of inflation, where INDEC has just announced that in March it was 7.7%.
Therefore, the question that the market asks is what is the maximum denomination bill needed in order to have, at least, the same purchasing power that the “hornero” had as soon as it went into circulation at the end of November 2017.
In short, due to the constant rise in prices in the economy, today the $1,000 currently acquires only 8.5% of the goods and services that this unit allowed access to on the date it was first released to the public and banks.
“In just over 5 years, the role of maximum denomination has lost more than 90% of its buying power”summarizes iProfessional Andrés Méndez, director of AMF Economics.
This translated into pesos by this expert, means that “Today, $11,692 is necessary to match the basket of goods and services of the National CPI that the $1,000 bill had access to on the date of its launch.”
Consequently, it is currently required to have 11 $1,000 bills, plus one $500 bill plus two $100 bills to access a similar basket as in December 2017.
Today a paper of $1,000 is equivalent to a value of $11,692 from more than 5 years ago, when the baker’s bill was released.
In practice, this noticeable loss of value of money explains the reason for the inconvenience caused by making a minimum payment in cash that already requires using a very large volume of banknotes.
many low value bills
The concrete thing is that more and more tickets are required to buy the same products and services as before, and that generates a higher cost of issuance, transfer and hoarding of money that is worth less day by day.
“The inflationary process and the reluctance to issue larger denomination units determine this situation: it is very expensive to have idle currency due to the deterioration caused by high inflation in physical holdings. And, in parallel, it is necessary to have a large number of bills to make smaller payments,” reflects Méndez to iProfessional.
Of course, the logistical solution to this problem is the issuance of a bill of more value than the current $1,000, which today amounts to only 2.5 dollars at the free exchange rate, and which barely serves to cover minor expenses.
It should be remembered that in the region, other countries have higher denomination bills that represent between US$25 and US$40. In other words, an estimated figure that can reach up to a $16,000 piece of paper.
What maximum bill today equates to the $1,000 of 2017
From now on, the outlook does not look encouraging for the highest denomination Argentine bill with a inflation that could be at 110% throughout this yearaccording to the estimates of the latest Survey of Market Expectations (REM), prepared by the BCRA among economists.
At the end of the year, a maximum denomination bill of $20,000 would be required to match the $1,000 bill at the end of 2017.
“With this scenario, At the end of 2023, a $20,000 bill would be necessary to replicate the initial purchasing power of that $1,000 unit”, Mendez argues.
And he completes: “In this way, when talking about issuing $2,000 or $5,000 units they are considering using aspirin to solve a problem that requires major surgery”.
Is that to try restore the purchasing power of tickets their denomination should be adjusted to the advance of inflation, to provide them with a real value similar to that of the paper with the baker’s image as soon as it hit the streets more than 5 years ago.
“Considering the processes that are needed for launches, by the spring a $15,000 bill should be issued and the new government would have to print at start in 2024 one that has a level bordering on $20,000″concludes Mendez to iProfessional.-
