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In Argentina, "cuevas" operate as tolerated yet illegal currency exchange centers, vital for the economy by providing convenient dollar exchanges. Under President Milei's reforms, these establishments may soon become legal, with Bitcoin potentially playing a significant role in the future of currency exchange.
In Argentina, the currency exchange black market is tolerated and “cuevas” are part of the game. At Calle Florida, a crier - known as “arbolitos” - is in every corner offering the service. However, make no mistake, currency exchange outside the country’s current regulations infringes the Foreign Exchange Criminal Law and thus is a criminal offense.
Nevertheless, the “cuevas” fuel the Argentinian economy. If people had to follow the law, the economy would grind to a halt. Plus, some see what these small establishments do as beneficial to the community. The population needed dollars because the peso was melting away, and black market trades at a “cueva” was the most convenient way of acquiring them.
The service is against the law, sure, but it’s not frowned upon. And it might be completely legal soon enough. On February 22nd, President Javier Milei told a local news channel:
“We would like to move to a system of currency competition, maintaining the peso and with a law that we will be sending to Congress that will define seigniorage as a criminal offense.”
We’ll get to that, but first, let’s explore the “cuevas” phenomenon and define some concepts.
A crier or “arbolito” attracts clients by shouting “Cambio, cambio,” negotiates with them on the street, and then walks the clients to establishments known as “cuevas.” After the trade, the “arbolito” gets a small cut. A “cueva” could be an antique shop or a drug store. Anyone could be a “cuevero” if you know how to ask.
In those places, the population buys and sells black market dollars, and they’ve been running for decades. The nineties was the only decade Argentina didn’t have “cuevas.” They make money from the spread between the buy and sale price, also known as bid and ask. The spread usually ranges between 1 to 3%, but they move a lot of money.
Last year, Ambito researched exactly how this underground activity functions and identified the key players in the “cuevas” ecosystem. Their anonymous source described the hierarchy and the numbers they deal with:
“The “cuevero” makes his difference in what he receives regardless of the amounts, from u$s200, while the “cambista” can ask you from u$s1000 onwards and a “correta,” already operates large blocks of up to 3 zeros.”
Let’s describe each character further.
“In the old days, the “corretas” used to be former bankers, for example, guys who retired from the financial sector, but, now, there are younger people.”
“The category of money changers covers a huge range: from foreign exchange agencies to former ALYCs directors, including financial companies that transfer money abroad”
“These have an enormous diversity: they range from small finance companies to a textile company, for example. There are “cuevas” all over the country, and that is where the unregistered volume is.”
Even more under the radar is what they call “el chiquitaje” or “small change.” This refers to the immense number of people who buy and sell dollars to their friends and family, coworkers, and anyone who asks. By all accounts, this market is huge and goes completely unreported.
Even though the black market is ever-present and tolerated, the risk is still there. When the police receives the order, first-time offenders could end up paying a fine of ten times the amount of the transaction in question. For repeat offenders, the punishment goes from one to four years in prison the first time and from one to eight the second.
According to Ambito, “the BCRA initiates the investigation, but the sentence is then issued by an economic criminal judge.” If you’re really unlucky, they might throw the book at you and apply money laundering charges, which carry much steeper penalties.
As it usually happens, these penalties are for the small players only. The big fishes play in a much bigger pond.
As we already established, the “cuevas” are tolerated but still illegal. That means details about the ecosystem’s operation are hard to come by. However, from time to time, something happens that sheds light and reveals secrets.
In October last year, “El Croata” AKA Ivo Esteban Rojnica AKA “El rey de las cuevas” fell from grace. The police and the AFIP raided his company’s Nimbus Group building in Buenos Aires. They found evidence of a number of offshore accounts in the US and of the purchase of several “million-dollar properties” in Paraguay.
The Buenos Aires Times asks how “he managed to move such large amounts of money from one country to another.” The answer:
“According to sources from the investigation, the maneuver might have been through Tower Travel, a travel agency that apparently served as a cover to move the "card dollar", known in central Buenos Aires as a "financial loop", which turned him a 20-percent profit in dollars for every transaction.”
One month later, La Nación printed an article that suggests that the “cueveros” worked hand in hand with the government to contain the dollar blue prices.
In Argentina, the dollar blue price couldn’t be more important. In times of elections, it can make or break a candidate. According to La Nación, the players involved accomplished their goal by giving the “cuevas” access to the much cheaper official dollars by “under-invoicing an export.”
An anonymous informer talked to Blink to explain this further.
“The blue dollar rate could be 50 or even 100% over the official dollar rate. Whoever can get hold of official dollars could make that kind of money instantly. So, there’s a real incentive for corruption. Even inside the Government, there are incentives to be a part of this business. You could even say that’s the real reason why they put these capital control measures in.”
Back to La Nacion, the newspaper goes into detail by saying that Judge Martínez de Giorgi found a connection:
“...between the fishing company Conarpesa and “El Croata”, which served to contain the blue price for several days. The famous friendly hands of the Government: someone receives official dollars, resells them at below market values and, even so, wins. Everybody is happy.”
All of this happened two months before President Javier Milei took office.
Before getting into that, our anonymous informer has another story that shows how “at the very top” the Government and the black market money changers are “mingled together.”
“During the pandemic, there was one exchange house with shops in the open. Anybody could walk in and exchange blue dollars, but only in this particular “cueva.” So, my theory is that they were entangled with the Government.”
Of course. A story as old as money itself.
Anyway, back to our regular programming, a question arises. How are there still currency controls in Argentina if the President is a self-proclaimed libertarian? The answer might surprise you.
As soon as he took office, the President announced that the “cueveros” business, buying and selling dollars, wasn’t considered a crime anymore. The Buenos Aires Times quoted Javier Milei:
“Buying the parallel 'blue' dollar is not a crime anymore. The dollar is free. Nobody will persecute you for it,” the President said during a radio interview.
Milei was referring to one of the core aspects of the economic deregulation contained in the Emergency Decree published on Thursday in the Official Gazette.”
In a strange twist of fate, that would also mean that the “cuevas” would cease to exist. Without currency control, Argentinians wouldn’t need a black market. Why didn’t the “cuevas” disappear, then? Well, the Emergency Decree was rejected by the Senate in March. Reuters explains:
“The decree, which originally contained over 600 articles, was rejected in a vote of 42-25, with four abstentions, and can only be definitively discarded if it is also rejected by Argentina's lower house.
The president's party has a minority in both chambers.”
So, nothing changed. The “cuevas” are still in business and unsanctioned currency exchange is still illegal but tolerated. The situation could change at any minute, though.
The US dollar is extremely important to Argentinians. The peso, their currency, has imploded a few times. The “corralito” fiasco of 2001 is still fresh in their memories. It’s only logical that they see the dollar as a lifeboat.
However, as Blink users should know, the dollar is also devaluating and the US Government’s money printer is working overtime. Not to mention, a devastating collapse is the unavoidable destiny of all fiat currencies. That’s where Bitcoin comes in.
The soundest money known to man is the ideal tool for the job. And Milei’s actual promise is not dollarization, it’s currency competition and monetary freedom. Not only that, “on December 21, Minister of Foreign Affairs, Diana Mondino tweeted: “We ratify and confirm that contracts in Bitcoin may be agreed in Argentina.”
So, Bitcoin will play a part in Argentina’s future. The question is, how big of a part? As the “cuevas” cease to exist and legitimate currency exchange businesses emerge, how popular will Bitcoin be?
A crucial factor to consider is that the peso is making a comeback under Milei.
“Since the peso first began to stabilize in January, it has advanced some 72 percent after adjusting for inflation, a gauge that Argentine investors watch closely because it measures changes in the currency’s actual purchasing power.
Those gains are beneficial for a country until they get to the point where they discourage companies from exporting products and keep foreign tourists away.”
Is the peso’s rally sustainable in the long term, or even in the mid-term? Probably not, but that’s debatable. Does the peso’s stabilization mean that Argentinians will forget the lessons learned in hard times and stick to fiat currencies? Or will they wisely decide to preserve their wealth by flocking to humanity’s greatest invention, Bitcoin? Only time and Argentinians can answer that.
However, the fundamentals will not change. Bitcoin is the soundest money ever created. In an environment fostering monetary freedom and currency competition, logic dictates that the hardest money will triumph. And if Bitcoin takes over, the “cuevas” will have a completely legal and bulletproof new product to buy and sell.
