The proposals to redirect the Argentine economyhit by the inflationary spiral and by the monetary alterations, appear strongly within the framework of a year of elections and the main concern on the daily agenda. While a sector of the electoral discussion predicts chaotic consequences in case of not applying a dollarizationother perspectives think about the effect that this measure would have on the wages And what would happen to him? central bank.
Within this framework, the Doctor in Economic Analysis (Complutense University of Madrid), Director of Economics of Found and Coordinator of the Macroeconomic Research Center for the Development of UNSAM, guido zack I think that “there is not much support in the dollarization proposal”. “It is not that one dollarizes and immediately the prices are fixed. Experience shows that there are still inflation“, he added.
“We make a calculation that is very simple, which is to divide the monetary base by the net reserves of the central bank which obviously gives a conversion exchange rate much higher than any parallel exchange rate”, explained the economist and added that “this exchange rate gives us for above two thousand pesos per dollar. It is not an exchange rate even close to what is today the Argentine economy“.
In addition, he added the variable of liabilities in the Central Bankwhose debt would be dollarized: “If we include this debt, and we think it has to be included because it is a debt that matures every 28 days, the conversion exchange rate is 7,070 pesos. The proposal is unfeasible. The dollarization proposal in general should include all the liabilities of the Central Bank, which are not only the monetary base but also the leliqs and the paid liabilities“.
Zack also referred to the dollarization experiences in other countries of the region. The example of Ecuador is paradigmatic: “Ecuador continued to have a fiscal deficitwhich, since it was dollarized, had to finance it solely with external debt and there came a point when the debt became unpayable and had to be restructured in 2020. Dollarization does not solve one of the recurring problems of the Argentine economy, which is over-indebtedness“, he explained, interviewed on Milenium radio.
In that sense, he recalled that “the year after dollarization, Ecuador had an inflation of 100% in dollars. It is not that one dollarizes and immediately the prices are fixed. Experience shows that there is still inflation“. “If today we dollarized in Argentina, we would have to do it at a very high exchange rate and that increase in the exchange rate would generate an increase in prices,” he considered.
Subsequently, he contrasted with the Bolivian case: “The Bolivia is an economy that has managed to stabilizehas very low inflation with own currency, but at some point he made the decision to fix the exchange rate. We think that the exchange rate has to fluctuate because the exchange tool is extremely important to moderate the international shocks within the domestic economy.
As mechanisms to mitigate the impact of the bi-monetary economy, Zack pointed to the need for “a stablecoin and ones assets in local currency that on the one hand beat inflationthat are positive in real terms, and that they beat the expected return on similar assets in foreign currency”.
“That’s him incentive to save in local currency and not abroad. It is not enough for this to happen for a couple of years, I dare say that a decade or two of this has to pass, so that a priori we can say that the savings stream that used to dollarize, is no longer dollarized because lately whoever bet on the peso won,” he concluded.
Source: Ambito
