“The elimination of the Argentine peso as the national currency would require a radical readjustment and would have a strong impact on the country’s monetary policy. The central bank would lose control of the currency and perhaps much of its power in the economic system. Establishing what exchange rate is a great challenge, prior to that the BCRA’s net reserves should be replenishedbecause there would be abrupt impoverishment with an exchange rate at the level of the reserves that exist today, almost zero,” he had explained to Ambitthe economist Elena Alonso.
Is it a viable option? What effects could it have? This is what ten economists say about dollarization about the idea that dollarizing the economy could be the solution to Argentine economic problems:
Jorge Remes Lenicov
The former Minister of Economy of Eduardo Duhalde said that there are no dollars to advance in that sense and that, even if there were, dollarizing the economy would bring a problem in the generation of employment and would not solve the difficulties of the productive sector. “One of the main consequences that dollarizing would have, according to Remes Lenicov, is the loss of policy instruments and a country that is developing needs to have all the instruments available. If one dollarizes, one loses the capacity for exchange and monetary policy,” said Remes Lenicov.
Meanwhile, regarding the consequences on workers, he was also skeptical: “I would start charging dollars, if there are dollars, but there are no dollars either.”
Lucas Llach
The economist and former vice president of the Central Bank (BCRA) said that, “excluding the Venezuelan bolivar, the dollar is the worst currency that Argentina could adopt.” And he considered that “tying to the dollar” would make the country “more expensive” compared to the world, given that many would be depreciating against the US currency. Thus, Llach explained that “It is good to gain exchange competitiveness in moments of ‘flight to quality’ and that tying ourselves to the dollar would generate exactly the opposite” because it would make the country more expensive compared to the world.
Carlos Maslaton
The liberal investment lawyer said that “The plan to cancel the monetary base for USD does not cover deposits in pesos of the system that, converted fully into dollars and, without reserve requirements or BCRA, become argendollars, that is, the nothing trout itself.”. Thus, he warned that allowing fractional banking to artificially create deposits in USD will lead to a guaranteed ‘crash’ in months.
Aldo Abram
This economist, head of the Libertad y Progreso Foundation, was one of the few who supported the dollarization proposal. “If this trap explodes, we will go to hyperinflation, which is nothing other than disorderly dollarization”, he warned. According to his vision, the current acceleration of the rise in parallel exchange rates and inflation responds to the growing loss of purchasing power that is generated by adding, to the large issuance of pesos, an increasingly greater decrease in its demand. And he considered that “The only logical solution is to order disorderly dollarization because, by abandoning the peso, we will achieve stability that allows the economy to recover.”
Andrés Asiain
The economist and director of the Scalabrini Ortiz Study Center pointed out that The dollarization of the economy is “a proposal conceived in ultraliberal economic laboratories owned by North American millionaires, which use poor third world countries, such as Ecuador and El Salvador, as laboratory rats to test the effect of its implementation.” However, Asiain warns that a crucial issue and the first question that arises around the proposal to dollarize an economy like Argentina today, besieged by the shortage of dollars, is where the greenbacks would come from to implement it.
Pablo Ferrari
“Dollarization would imply, among other issues, a rigid conversion of the peso with the dollar that currently would approximately imply that US$1 is equivalent to $10,000, an exchange rate 50 times greater than the current one”, warned the economist from the University of Avellaneda. Thus, Ferrari considers that, to simplify, with a devaluation of this magnitude, most of the prices in the economy would follow the increase in the dollar, while salaries would remain the same. “So, a necessary consequence of the measure is the violent reduction of wages,” he said.
Emilio Ocampo
This economist and UCEMA historian opined that “we are in the field of second best” (that is, choosing a less bad plan B). He explained that, at the monetary level, the optimal solution – a competent and independent central bank – is not affordable. And, in that context, he maintained that, “in the menu of affordable sub-optimal solutions, the one with the best chance of success is dollarization.”
He acknowledged that there are some costs of dollarizing, which include the possibility of losing: monetary (or exchange rate) policy as a stabilization tool, seigniorage income, and the BCRA as a lender of last resort. However, he pointed out, in the current context of Argentina, none of these costs are significant, since “monetary policy is precisely the main reason why we are where we are and, as for the BCRA, it cannot be a lender of last.” instance of the banking system when it is the debtor of first instance.”
Guido Zack
The doctor in Economic Analysis (Complutense University of Madrid), director of Economics at Fundar and coordinator of the Center for Macroeconomic Research for Development at UNSAM, said that “there is not much support in the dollarization proposal.” “Dividing 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”, he explained. And he added that it is not that one dollarizes and immediately prices remain fixed, but that experience shows that there continues to be inflation.
Daniel Adler
“Dollarization in Argentina is a feasible option as long as we know what exchange rate we are going to dollarize at. “It is not the same at 400, 800 or 1000 pesos per dollar,” warned the financial education specialist. Thus, Adler said that we must be clear about how many dollars there are in the Argentine financial market to equate this dollarization action.
However, I mention that dollarization can also be managed with international credit, whether from the IMF, the United States, or wherever. “It could be dollarized at $400, which would be equivalent to requesting a loan of 43 billion dollars. Or you could dollarize it at $800 and ask for half that amount.”, he exemplified. Although, for him, today, it is not ideal.
Agustín Etchebarne
The economist pointed out that “Argentina needs unconventional but effective solutions” to face its inflation problem and that “We can all agree on the need for a stable currency in the next 50 years”. He said that the advantages of a dollarization program that eliminates the forced exchange rate of the peso and implements currency freedom in Argentina are, among others, that employees and retirees begin to receive income in more stable currency; a decrease in currency volatility and interest rate fluctuations; which will contribute to reducing country risk by reducing the cost of debt and improving access to international financial markets, strengthening fiscal discipline and responsibility in the management of public finances.
Source: Ambito
