Javier Milei’s strategy to advance with the end of the peso, according to the market

Some consider that the administration of Libertad Avanza “bastards” the peso with the aim of dollarizing the economy in the shortest possible time.

The idea is based on the fact that The Central Bank (BCRA), in coordination with the Ministry of Economy, maintains a monetary policy rate well below inflation in order to liquefy the pesos. But what happens with this is that, although the monetary base is greatly reduced, the demand for currency falls more strongly, and this results in an expansive monetary policy.

“Punishing savings in pesos can have harmful effects in the medium and long term. Bastardizing the peso should not be part of monetary policy after so many years of punishing it in various ways,” economists point out in a report. Javier Okseniuk and Melisa Sala, from the LCG consulting firm.

The report states that “defending the idea that savings are channeled into instruments in pesos should be the appropriate policy, especially if fiscal accounts are strengthened.”

“The idea remains a possibility that What is behind the punishment of our currency is a dollarization strategy the economy,” both market analysts say.

Does money creation fall?

Both professionals maintain their doubts about the idea that the monetary base is currently contracting . “The monetary base fell 6.6% real monthly in December and the same in January. Compared to a year ago, it plummeted by 40% measured in real terms,” they explain.. This is because the government is selling Bopreales and liquefying pesos through BCRA repos operations.

However, the report states that ““The demand for pesos fell more than the supply” because inflation remains high and people demand fewer bills when using electronic payments.

“Typically, interest rates reflect the equilibrium in the money market. As they have fallen since December (even in nominal terms), it can be said that the demand for pesos fell more than the supply.”explains the LCG study, and therefore concludes that the balance of both movements results in an expansive monetary policy.

And finally, the report warns: “It is assumed that we will travel a path to price stabilization (possibly from March/April) so monetary policy must have a contractionary bias to stimulate savings in pesos.”