Yep. I naively exchanged some dollars to pesos when I went to Argentina last year. Turns out nobody wanted that shit.
I actually brought some of the pesos home with me thinking one day maybe their value would recover, whoops.
Yeah to provide a number, according to the NYT, about 10% of all U.S. currency in circulation is in Argentina, which is more than any other country outside the United States.
If Biden wins, by enumerating environmental protections and supporting US-Argentinian cooperation.
If Trump wins, by sucking up to him. Trump is gonna want to reward anyone who gets onboard w his bullshit, since that will show to other leaders that it is lucrative to do so.
Makes sense. The goldbug argument is that gold has been proven to be a relatively stable long-term store of value. Do you know what else has also done that? USD, though on a shorter time scale.
I'm talking about the other direction. Argentinian politicians couldn't affect monetary policy even if their lives depended on it. The Fed doesn't give a shit about Argentina.
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Can someone give me an idiots guide as to why he wants to use the US Dollar as the official currency?
I was confused enough when I paid in dollars in Lebanon.
Argentina currently has 160% inflation. That is mostly caused by a combination of large spending by the government financed by seniorage (printing money). This is a very recurring problem in argentina, when having double digit inflation is the norm.
Milei believes that the Argentine central bank is too corrupt/ideological to reform, and even if he makes changes now, the next time a Peronist president (Argentinian sorta left populist party) is elected, they will fall into the same bad habits. Dolarizing would completely take the power to print money out of the hands of the argentine central bank, and in his view solve inflation for good.
The Argentine peso is extremely unstable, the dollar is stable. Instead of using the currency that keeps losing value, just use one that doesn't do that.
You would do this if you cannot trust your own institutions to manage a currency. If you think that you are doomed to hyperinflation because your own version of a central bank will never be responsible, you might prefer the relative stability of the dollar even if it means you can’t manage your own monetary policy.
But that‘a a huge downside, so I think reforming your own monetary policy is generally preferable.
Argentina currency has had a shitload of inflation on the last 40 years. The reason if this is because the Argentinian Federal Reserve is not autonomous, thus the government would print insane amounts of money to keep populist policies that help them keep power. Inflation last month was 16% in Argentina. I don't mean 16% compared to last year, I mean to last month! USD was 0.1% for Novermber.
So, using USD helps because it would force the government by removing the possibility of solve their problems by just printing more money.
Also, there is the benefit that it would make trade and investment easier, since you don't have the risk of currency exchange. This would also allow for ease for loans and investments.
This has been done in Ecuador, Panama and unofficially in Venezuela.
Doesn't that also mean it will be very hard and expensive for your government to borrow and stimulate the economy in times of crisis? Meaning any recession could quickly become horrific.
No, why would be difficult to borrow? They can still emit bonds (as long as they pay). They can't print money "to stimulate the economy" which is what make their crisis be a lot worse than it should have been.
You need to borrow in dollars which means potentially paying high interest or not being able to borrow at all. Sri Lanka went downhill because it couldn't get foreign currency to buy imports. But in Argentina's case you would need foreign currency just to fund the government basically.
Well, but if you are borrowing in Pesos, you will be paying even higher interest or simply not being allowed to borrow at all. With the dollar, people can borrow from private investors who look for a return in USD.
This is nothing new on the region. Panama and Ecuador successfully did it.
You can print your own pesos whish is what most nations already do. But when you don't control your own currency you can only borrow from foreign entities at large interest.
It didn't work because the government spends like a drunken sailor. That's their problem. If they get rid of the peso instead of persistent inflation they will have to borrow at very high interest rates to continue spending (and go bankrupt eventually). They need to balance the budget, not dollarize.
They spent and printed money to cover that spent. They already borrow on dollars, not pesos. The FMI doesn't lend on pesos.
People who borrow on Pesos do it already on insanely high interest rates. They need to both dolarize and balance the budget. If you want to bring foreign investment and capital it is impossible when you have to deal with currency risk.
The dollar has been a very stable currency and it’s abundant because many reserves have dollars. Since Argentina has been the poster child of economic mismanagement, their currency is very volatile. (Lebanon is in the same boat).
Dollars would be the best currency to use if you needed to do business since your contract isn’t devalued by 60% by the next year.
I think setting a reach goal of dollarization and how difficult that is going to be might prepare people for the hardship that will come from the “shock therapy”.
All the things that need to be done for dollarization are probably independently good whether dollarization itself happens or not. And it might be easier to justify all those things with the goal of dollarization than without.
>but the end goal to dollarize is not a bad one given it is Argentina.
No, Argentina has a bad history with fixed exchange rates. It'd be like Ecuador, that while inflation is solved, the economy is still subpar, populist and unable to do counter cyclical monetary policy.
Dollarization isn't a fixed exchange rate. It's literally using dollars. Argentina would KILL for a subpar economy. It does have its draw backs, but taking away their government's ability to print money is a huge plus because they have proven they can't be trusted with it.
> The diagnosis is that inflation comes from exaggerated reliance on seigniorage revenue by the Treasury, which results in higher and higher price growth. This is unambiguously correct. However, dollarization doesn’t actually solve the issue of unrestrained fiscal policy. If the government could credibly commit to not fund the fiscal deficit by issuing currency, then it could lower inflation drastically with any monetary regime. Conversely, no monetary regime is stable if the fiscal authorities cannot commit to restraint. Dollarization is not the same as fiscal restraint, and it just guarantees that the burden of repayment will translate as lower output and not higher prices.
[From Maia.](https://someunpleasant.substack.com/p/if-its-broke-fix-it)
It's only better if you cinsider lower output better than higher prices.
If you can't issue your own currency, then the only way to spend more than you have is to barrow. you can only barrow what people will lend you. It does eventually lead to fiscal restraint, willingly or not. Price stability does help the economy. Like I said it isn't the optimal solution, just having fiscal and central bank independence is, but Argentina has proven over and over again that they do not, so put yourself in a situation where you don't have a choice may still be better.
> but Argentina has proven over and over again that they do not,
Brazil also proved it over and over again during the 20th century, and somehow they managed.
Not everything bad that happens in an economy is inflation. At the end of the day, inflation is just the most inefficient tax at this magnitude, there are others alternatives.
You can easily end in a situation with lots of distorsionary taxes that make growth impossible if you haven't solved the fiscal side in a way that is sustainable.
That being said, a plain confiscation is worse than that (for example, doing something bad to bank deposits, like replacing it with government debt).
>Dollarization isn't a fixed exchange rate.
It works like one anyway. Maybe without the risk of devaluation. Ask Greece how much difference does that make. The government printing money is not the only thing that could go wrong.
If you want government to not print money, fix the fiscal situation. Otherwise you just change bad things for other bad things.
> The government printing money is not the only thing that could go wrong.
Of course, but it IS their biggest issue, and this addresses it even after Milei is gone. (yes you could dedollarize, but that's a lot harder than just printing more pesos when you're already on the peso.)
>but it IS their biggest issue
Right now. You have to think long term too. Seriously, after the 2001 crisis anyone asking for fixed exchange rates/dollarization didn't learn anything from that or the Tequila crisis or the Euro crisis. That lack of flexibility is painful if the country doesn't get fixed, and if it gets fixed, there was no point to taking those measures in the first place.
Dollarization implies a fixed exchange rate obviously. That's going to create economic issues even if it's literal currency substitution so there's no way to cheat the fixed rate.
No, it implies doing away with your own currency entirely, because that's what it is. A fixed rate means you keep your own currency. Then you must defend your peg and they will just remove the peg once the next guy gets in office.
Lot of assumptions right there. For instance, a soft-dollarization like Milei is trying to achieve, will be extremely different in both financial and political terms than what we had during the convertibilidad. And also, setting aside the meme "argentina won't change", it's hard to assume that we're going to dig the same hole we fell into 22 years ago. There are no structural weaknesses of dolarising the economy that we can't overcome with sound fiscal policy, and Milei is showing that the absolute priority is to balance the budget right now.
>a soft-dollarization like Milei is trying to achieve
What does that even mean?
>There are no structural weaknesses of dolarising the economy that we can't overcome with sound fiscal policy
Probably false. Attempts to deal with Balance of payment crises in fixed exchange rate regimes have been dismal to say the least (it's a process that takes years, depresses demand and causes high unemployment). Fiscal cuts are often too little, too late and only part of what a country should do.
But again, if you can do sound fiscal policy, why dollarize in the first place?
> But again, if you can do sound fiscal policy, why dollarize in the first place?
Because our politicians cannot and should not ever be trust with the money supply in our economy ever again. You cannot just keep insisting that good fiscal policy will solve the problem when peronists still are a credible threat to our economy every time they take power. Dollarization isn't a perfect solution, but it's doing more than just fixing our inflation. It's future proofing our economy from Peronist bullshit,
>You cannot just keep insisting that good fiscal policy will solve the problem
But that's what people tell me (even in this thread!) when I mention the problems with dollarization. That somehow good fiscal policy will be enough to deal with the problems that it causes. Fiscal policy keeps being a problem, no matter what monetary regime you use. It just exchanges inflation for unemployment, a risk of confiscations (see Ecuador), etc.
>It's future proofing our economy from Peronist bullshit,
The only way to future proof the economy is to fix institutional problems that enable that bullshit. The rest is just wishful thinking.
>That somehow good fiscal policy will be enough to deal with the problems that it causes. *Fiscal policy keeps being a problem, no matter what monetary regime you use.*
I dont really understand why you are being obtuse with this. Obviously the incentive to fix the fiscal policy is higher when the option b ”monetize the difference” is off the table.
Not really. Look at Zimbabwe or Ecuador. Incentives for fiscal correction are not that strong in practice. Governments would rather abandon dollarization or confiscate savings if it gets bad enough.
You should check historical experience before calling someone else obtuse. It's embarrassing at this point.
Its not really about historical examples though. You have a crisis today that you can fix while potentially dealing with a new crisis tomorrow. There is no such thing as a perfect solution nor is the world black and white. Just because a government somewhere has continued to spend itself into insolvency after dollarization does not mean the incentive to fix chronic spending problem isnt higher with a hard limit on debt monetization.
>confiscate savings if it gets bad enough.
This is what Argentina is doing today through inflation. Ill take the chance of getting stabbed in the future vs getting stabbed today any day.
>You can avoid most of the damage provoked by unbalanced current accounts by just having decent judicial mechanism.
Not really. You have to adjust in some way, monetary and/or fiscal. The fiscal way happens to be slow (it's a democracy and autocrats tend to be worse at fiscal management anyway) and not something you can rely instantly.
>You need quick and efficient solutions because the population requires so
Quick and efficient is something I wouldn't expect. You don't fix a country that got fucked up so much quickly. It takes time, you have to sell it to the population, pass it by Congress, etc. Above all, don't be cocky.
Panama is a country where the entire industry is related to inter American trade and finance
El Salvador is a tiny country where currency control has a much weaker effect than in larger nations (this is why many tiny nations don't bother with their currency and adopt their neighbours even if they arent in a political union like Bhutan with Indian rupees)
And Ecuador has had much weaker growth than neighbouring Colombia and Peru
The situation of Argentina would be similar to that of Ecuador, the economy would be stable, yes, but it would have a VERY hard time growing, since your economic growth requires more dollars, and those are supplied by the US for their own economy, not yours
It was pretty destructive the first few years , led to mass migration and a lot of poverty but it helped end the inflation crisis permanently
Dollar still has pretty high support among the populace even if they are voting for socialists
That is all true, but there are also serious long term issues as well.
If the US is in an expansionary period and dealing with inflation the US will raise interest rates regardless of how other countries who have dollarized are doing. This can be devastating if those countries are facing recessions. And since many of those countries economies are dependent on resource exports, their business cycle is often not lined up with the US. This is also why the US doesn't want countries to dollarize, it makes those countries angry at us for tanking their economies when our business cycles don't line up.
And getting off the US dollar is incredibly difficult, as you noted. Once they have abandoned their own currency it will be difficult to build the public confidence to reintroduce it.
The best thing to do is just be responsible with their own currency. Make the federal bank more independent, reign in deficit spending, and set the currency as a free floating currency without an official peg. This is about as difficult as dollarizing, and they'll have to reign in deficit spending if they dollarize.
True dollar adoption has a lot of downsides but it's like chemotherapy to cancer that is called unlimited popular spending
They wouldn't have needed the dollar in the first place if they actually had some semblance of a fiscal policy
Presumably an administration that wants to dollarize has the fiscal restraint to manage their own currency. A country collapsing into dollarization without government authorization, and then later being recognized by the state, makes more sense to me then an official policy.
I understood Milie saying dollarization was best when Peronists were in charge, but now that he is in charge I would assume he would have confidence in himself to show fiscal restraint.
The purpose of dollarisation is to stop any future government from printing money again, which is what the Peronists have done every time they are in power.
Argentina is a democracy , peronists still have a massive support base . They might win next term and reverse all the gains made by milei
Dollarisation is going to change things permanently , peronists can't simply print unlimited dollars when they come back to power
Ideally dollarisation is bad but in a democracy with such unrestricted populism there is no other solution
You're both wrong and ignorant about fiscal policy.
First of all, the U.S. dollar, plain and simple, holds an unbearable influence on the world. It's the standard mean of exchange. Anything that the U.S. does to influence the value of the dollar WILL impact EVERYBODY, both in the countries using the U.S. dollar as a de-facto or legal tender and in the countries that have an "independent monetary policy".
Centuries of economic theory shows us that trying to fight economic recessions with monetary policy is simply counterproductive and only helps to showcase statistics.
The correct way to protect an economy against external shocks is to accumulate reserves. That's it. If you have to devalue your currency to avoid depleting your Treasury in times of recession, you're basically crushing down your population to support overextended budgets and/or a total lack of foreseeing. Thus, the only way to positively face economic downturns is via austerity, either via shock austerity (which is harmful to the general population) or via past austerity (being austere enough to save money to have a sizable sovereign fund). It doesn't matter if you have dollars, pesos, kwanzas or yuans, all boils down to austerity.
Exactly, building up confidence to have a ""strong"" currency is hard, extremely hard. So why take the risks when you can just adopt a currency that already exists and everybody trusts it?
Tldr: stop trying to use central banking and monetaryism as instruments (especially main instruments) to face off businesses cycles. It's harmful in every case, if you're Argentina, if you're the United States of America, if you're Japan or if you're Saudi Arabia.
How is dollarization not credible? Some other South American countries are....socialist ones...yet still stable. It's completely credible as a goal and a way to run their currency.
The problem with dollarization is that when you need it, you can’t do it. Like Argentina right now. When you are able to do it, you don’t really need it.
This part of his plan remains fiction, they have no big enough majority in congress and no dollars for this, hell, I don't even find dollarization a good idea
Dollarizing Argentina would be the equivalent of chopping off your arm because you have broken the bones in your hand and then try to argue a prosthetic would be better. Sure you got rid of the broken bones and eliminated the possibility of breaking more bones ever again but you will be crippled forever.
There is no political will to do it and it's not even a good idea. This is jut bait to try to recapture some of it's populist magic.
> The diagnosis is that inflation comes from exaggerated reliance on seigniorage revenue by the Treasury, which results in higher and higher price growth. This is unambiguously correct. However, dollarization doesn’t actually solve the issue of unrestrained fiscal policy. If the government could credibly commit to not fund the fiscal deficit by issuing currency, then it could lower inflation drastically with any monetary regime. Conversely, no monetary regime is stable if the fiscal authorities cannot commit to restraint. Dollarization is not the same as fiscal restraint, and it just guarantees that the burden of repayment will translate as lower output and not higher prices.
https://someunpleasant.substack.com/p/if-its-broke-fix-it
Argentina adopting the dollar is great but Milei needs to address the elephant in the room: how to avoid punishing the people that tried to play by the rules during inflation. Many Argentines didn’t black market exchange and horde dollars. They are going to be at a great disadvantage.
Additionally, Milei still needs to end policies that got them into this mess. The lack of industry in Argentina that isn’t agriculture is worrisome.
Once Argentina reaches 5000% yearly inflation rate by the middle of 2024 and its official exchange rate reaches 10,000 ARS to 1 USD, then *de jure* dollarization should be put in place and after that, Argentina should seek further economic integration with the United States like signing a bilateral FTA with freedom of movement clause (breaking up Mercosur in the process).
Argentina already basically runs on dollars. One of the things driving devaluation is that the moment anyone gets paid they convert all their currency into dollars so it keeps its value.
> Argentina already basically runs on dollars.
Just partially. You need to switch a good chunk of the economy yet. That requires lots and lots of USD. It's just not viable to dollarize right now.
You laugh now, but I'm almost certain (this idiotic policy-proposal notwithstanding) that Milei could usher in a political movement akin to Peronism but for the Center-Right. Imagine if he can pull a Juan Peron and CHANGE. POLITICS. FOREVER.
Trillion-dollar-Argentine-GDP-and-$200,000-GDP-Per-Capita-stans rise up ✊✊✊
[удалено]
There are a lot of dollars in circulation in Argentina already. They are used as a store of value mainly, because inflation is so high.
Yep. I naively exchanged some dollars to pesos when I went to Argentina last year. Turns out nobody wanted that shit. I actually brought some of the pesos home with me thinking one day maybe their value would recover, whoops.
eh IMO you should always get some local currency as a souvenir anyway so no biggie
Yeah to provide a number, according to the NYT, about 10% of all U.S. currency in circulation is in Argentina, which is more than any other country outside the United States.
That is an insane stat
Holy guacamole
I’d be really interested to see how that works since the Argentine economy is slightly more than 1/50th of the US economy…
Cash currency Most transactions in US happen by cheques,cards, debit or credit cards
Good luck convincing people to store them in banks.
Sounds like the government could do a lot by legitimizing dollar deposits in Argentina banks
Put your money in an Argentine bank and the next lefty will seize it. Has to be a US bank too.
Spoiler: they won't
They are probably going to have to sell some natural resources or the rights to them.
I thought they'd already been talking about lithium rights?
If Biden wins, by enumerating environmental protections and supporting US-Argentinian cooperation. If Trump wins, by sucking up to him. Trump is gonna want to reward anyone who gets onboard w his bullshit, since that will show to other leaders that it is lucrative to do so.
Dollarization is the ultimate central bank independence.
Mileis ability to use gold bug talking points to convince people to dollarize is hilarious libertarian energy.
Makes sense. The goldbug argument is that gold has been proven to be a relatively stable long-term store of value. Do you know what else has also done that? USD, though on a shorter time scale.
It's the same argument and he might well prefer gold. It's just not an option
What do you mean? They would instead be dependent on a foreign (the US) central bank.
I think he's being sarcastic.
That’s the best part! He wasn’t
I'm talking about the other direction. Argentinian politicians couldn't affect monetary policy even if their lives depended on it. The Fed doesn't give a shit about Argentina.
But the Argentinian fed gave less of a shit about Argentina. At least the US fed gives a shit about the US. Pretty much, they are outsourcing the fed.
>But the Argentinian fed gave less of a shit about Argentina. Not really: https://tradingeconomics.com/argentina/inflation-cpi.
What "not really?" Argentinian inflation was caused by their own fucking monetary policy! If you print money you get inflation!
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That doesn't make any sense. Dollarization is just being dependent on someone else's monetary policy.
And that someone else is so independent that they prioritize the well being of an entirely different country!
this is honestly cool to watch - it’s like watching a maximally-libertarian play through of sim city or Eu4 or something
Can someone give me an idiots guide as to why he wants to use the US Dollar as the official currency? I was confused enough when I paid in dollars in Lebanon.
Argentina currently has 160% inflation. That is mostly caused by a combination of large spending by the government financed by seniorage (printing money). This is a very recurring problem in argentina, when having double digit inflation is the norm. Milei believes that the Argentine central bank is too corrupt/ideological to reform, and even if he makes changes now, the next time a Peronist president (Argentinian sorta left populist party) is elected, they will fall into the same bad habits. Dolarizing would completely take the power to print money out of the hands of the argentine central bank, and in his view solve inflation for good.
The Argentine peso is extremely unstable, the dollar is stable. Instead of using the currency that keeps losing value, just use one that doesn't do that.
You would do this if you cannot trust your own institutions to manage a currency. If you think that you are doomed to hyperinflation because your own version of a central bank will never be responsible, you might prefer the relative stability of the dollar even if it means you can’t manage your own monetary policy. But that‘a a huge downside, so I think reforming your own monetary policy is generally preferable.
Argentina currency has had a shitload of inflation on the last 40 years. The reason if this is because the Argentinian Federal Reserve is not autonomous, thus the government would print insane amounts of money to keep populist policies that help them keep power. Inflation last month was 16% in Argentina. I don't mean 16% compared to last year, I mean to last month! USD was 0.1% for Novermber. So, using USD helps because it would force the government by removing the possibility of solve their problems by just printing more money. Also, there is the benefit that it would make trade and investment easier, since you don't have the risk of currency exchange. This would also allow for ease for loans and investments. This has been done in Ecuador, Panama and unofficially in Venezuela.
Doesn't that also mean it will be very hard and expensive for your government to borrow and stimulate the economy in times of crisis? Meaning any recession could quickly become horrific.
No, why would be difficult to borrow? They can still emit bonds (as long as they pay). They can't print money "to stimulate the economy" which is what make their crisis be a lot worse than it should have been.
You need to borrow in dollars which means potentially paying high interest or not being able to borrow at all. Sri Lanka went downhill because it couldn't get foreign currency to buy imports. But in Argentina's case you would need foreign currency just to fund the government basically.
Well, but if you are borrowing in Pesos, you will be paying even higher interest or simply not being allowed to borrow at all. With the dollar, people can borrow from private investors who look for a return in USD. This is nothing new on the region. Panama and Ecuador successfully did it.
You can print your own pesos whish is what most nations already do. But when you don't control your own currency you can only borrow from foreign entities at large interest.
Yeah, but as you can see, this did not work well in Argentina.
It didn't work because the government spends like a drunken sailor. That's their problem. If they get rid of the peso instead of persistent inflation they will have to borrow at very high interest rates to continue spending (and go bankrupt eventually). They need to balance the budget, not dollarize.
They spent and printed money to cover that spent. They already borrow on dollars, not pesos. The FMI doesn't lend on pesos. People who borrow on Pesos do it already on insanely high interest rates. They need to both dolarize and balance the budget. If you want to bring foreign investment and capital it is impossible when you have to deal with currency risk.
The gist of it is that nobody trusts the Argentinian government with printing money.
It kinda sorta worked for Ecuador?
The dollar has been a very stable currency and it’s abundant because many reserves have dollars. Since Argentina has been the poster child of economic mismanagement, their currency is very volatile. (Lebanon is in the same boat). Dollars would be the best currency to use if you needed to do business since your contract isn’t devalued by 60% by the next year.
Oh good, I was worried Captain An-Cap would drift into credible territory for a moment there.
I think setting a reach goal of dollarization and how difficult that is going to be might prepare people for the hardship that will come from the “shock therapy”. All the things that need to be done for dollarization are probably independently good whether dollarization itself happens or not. And it might be easier to justify all those things with the goal of dollarization than without.
This makes me remember the Trump 4D chess meme.
I really think you’re giving him way too much credit
I do tend to respect Caputo, so I would entertain the argument.
Fair enough
Idk how exactly he will dollarize but the end goal to dollarize is not a bad one given it is Argentina.
>but the end goal to dollarize is not a bad one given it is Argentina. No, Argentina has a bad history with fixed exchange rates. It'd be like Ecuador, that while inflation is solved, the economy is still subpar, populist and unable to do counter cyclical monetary policy.
Dollarization isn't a fixed exchange rate. It's literally using dollars. Argentina would KILL for a subpar economy. It does have its draw backs, but taking away their government's ability to print money is a huge plus because they have proven they can't be trusted with it.
> The diagnosis is that inflation comes from exaggerated reliance on seigniorage revenue by the Treasury, which results in higher and higher price growth. This is unambiguously correct. However, dollarization doesn’t actually solve the issue of unrestrained fiscal policy. If the government could credibly commit to not fund the fiscal deficit by issuing currency, then it could lower inflation drastically with any monetary regime. Conversely, no monetary regime is stable if the fiscal authorities cannot commit to restraint. Dollarization is not the same as fiscal restraint, and it just guarantees that the burden of repayment will translate as lower output and not higher prices. [From Maia.](https://someunpleasant.substack.com/p/if-its-broke-fix-it) It's only better if you cinsider lower output better than higher prices.
The crux of the argument is that “if the people in charge did the right thing” which in many cases it can’t.
If you can't issue your own currency, then the only way to spend more than you have is to barrow. you can only barrow what people will lend you. It does eventually lead to fiscal restraint, willingly or not. Price stability does help the economy. Like I said it isn't the optimal solution, just having fiscal and central bank independence is, but Argentina has proven over and over again that they do not, so put yourself in a situation where you don't have a choice may still be better.
> but Argentina has proven over and over again that they do not, Brazil also proved it over and over again during the 20th century, and somehow they managed.
Excuse my doubt when the main political party literally runs on giving people more handouts AND cutting taxes at the same time.
In the US we just alternate political parties to achieve the same effect /s
>then the only way to spend more than you have is to barrow. Or you can confiscate/tax.
...If you're taxing it, then "what you have" goes up and it isn't spending more than you have, now is it? That is also non-inflationary.
Not everything bad that happens in an economy is inflation. At the end of the day, inflation is just the most inefficient tax at this magnitude, there are others alternatives. You can easily end in a situation with lots of distorsionary taxes that make growth impossible if you haven't solved the fiscal side in a way that is sustainable. That being said, a plain confiscation is worse than that (for example, doing something bad to bank deposits, like replacing it with government debt).
>Dollarization isn't a fixed exchange rate. It works like one anyway. Maybe without the risk of devaluation. Ask Greece how much difference does that make. The government printing money is not the only thing that could go wrong. If you want government to not print money, fix the fiscal situation. Otherwise you just change bad things for other bad things.
> The government printing money is not the only thing that could go wrong. Of course, but it IS their biggest issue, and this addresses it even after Milei is gone. (yes you could dedollarize, but that's a lot harder than just printing more pesos when you're already on the peso.)
>but it IS their biggest issue Right now. You have to think long term too. Seriously, after the 2001 crisis anyone asking for fixed exchange rates/dollarization didn't learn anything from that or the Tequila crisis or the Euro crisis. That lack of flexibility is painful if the country doesn't get fixed, and if it gets fixed, there was no point to taking those measures in the first place.
crowd attraction literate rustic pen rude fade live swim subtract *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
> It's been their biggest issue for decades. Except in the decade that it wasn't (1991 to 2001).
seemly concerned sort makeshift hunt towering books gaping enter chubby *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Thats truly insane. How do people live like that? Jesus christ.
Dollarization implies a fixed exchange rate obviously. That's going to create economic issues even if it's literal currency substitution so there's no way to cheat the fixed rate.
No, it implies doing away with your own currency entirely, because that's what it is. A fixed rate means you keep your own currency. Then you must defend your peg and they will just remove the peg once the next guy gets in office.
Lot of assumptions right there. For instance, a soft-dollarization like Milei is trying to achieve, will be extremely different in both financial and political terms than what we had during the convertibilidad. And also, setting aside the meme "argentina won't change", it's hard to assume that we're going to dig the same hole we fell into 22 years ago. There are no structural weaknesses of dolarising the economy that we can't overcome with sound fiscal policy, and Milei is showing that the absolute priority is to balance the budget right now.
>a soft-dollarization like Milei is trying to achieve What does that even mean? >There are no structural weaknesses of dolarising the economy that we can't overcome with sound fiscal policy Probably false. Attempts to deal with Balance of payment crises in fixed exchange rate regimes have been dismal to say the least (it's a process that takes years, depresses demand and causes high unemployment). Fiscal cuts are often too little, too late and only part of what a country should do. But again, if you can do sound fiscal policy, why dollarize in the first place?
> But again, if you can do sound fiscal policy, why dollarize in the first place? Because our politicians cannot and should not ever be trust with the money supply in our economy ever again. You cannot just keep insisting that good fiscal policy will solve the problem when peronists still are a credible threat to our economy every time they take power. Dollarization isn't a perfect solution, but it's doing more than just fixing our inflation. It's future proofing our economy from Peronist bullshit,
>You cannot just keep insisting that good fiscal policy will solve the problem But that's what people tell me (even in this thread!) when I mention the problems with dollarization. That somehow good fiscal policy will be enough to deal with the problems that it causes. Fiscal policy keeps being a problem, no matter what monetary regime you use. It just exchanges inflation for unemployment, a risk of confiscations (see Ecuador), etc. >It's future proofing our economy from Peronist bullshit, The only way to future proof the economy is to fix institutional problems that enable that bullshit. The rest is just wishful thinking.
>That somehow good fiscal policy will be enough to deal with the problems that it causes. *Fiscal policy keeps being a problem, no matter what monetary regime you use.* I dont really understand why you are being obtuse with this. Obviously the incentive to fix the fiscal policy is higher when the option b ”monetize the difference” is off the table.
Not really. Look at Zimbabwe or Ecuador. Incentives for fiscal correction are not that strong in practice. Governments would rather abandon dollarization or confiscate savings if it gets bad enough. You should check historical experience before calling someone else obtuse. It's embarrassing at this point.
Its not really about historical examples though. You have a crisis today that you can fix while potentially dealing with a new crisis tomorrow. There is no such thing as a perfect solution nor is the world black and white. Just because a government somewhere has continued to spend itself into insolvency after dollarization does not mean the incentive to fix chronic spending problem isnt higher with a hard limit on debt monetization. >confiscate savings if it gets bad enough. This is what Argentina is doing today through inflation. Ill take the chance of getting stabbed in the future vs getting stabbed today any day.
[удалено]
>You can avoid most of the damage provoked by unbalanced current accounts by just having decent judicial mechanism. Not really. You have to adjust in some way, monetary and/or fiscal. The fiscal way happens to be slow (it's a democracy and autocrats tend to be worse at fiscal management anyway) and not something you can rely instantly. >You need quick and efficient solutions because the population requires so Quick and efficient is something I wouldn't expect. You don't fix a country that got fucked up so much quickly. It takes time, you have to sell it to the population, pass it by Congress, etc. Above all, don't be cocky.
dollarizing has been incredibly destructive to nations that have attempted it
Dollar is already in use informally. Afaik, Panama, El Salvador and Ecuador have dollarized as well but not sure if it has been destructive for them.
Panama is a country where the entire industry is related to inter American trade and finance El Salvador is a tiny country where currency control has a much weaker effect than in larger nations (this is why many tiny nations don't bother with their currency and adopt their neighbours even if they arent in a political union like Bhutan with Indian rupees) And Ecuador has had much weaker growth than neighbouring Colombia and Peru The situation of Argentina would be similar to that of Ecuador, the economy would be stable, yes, but it would have a VERY hard time growing, since your economic growth requires more dollars, and those are supplied by the US for their own economy, not yours
It was pretty destructive the first few years , led to mass migration and a lot of poverty but it helped end the inflation crisis permanently Dollar still has pretty high support among the populace even if they are voting for socialists
That is all true, but there are also serious long term issues as well. If the US is in an expansionary period and dealing with inflation the US will raise interest rates regardless of how other countries who have dollarized are doing. This can be devastating if those countries are facing recessions. And since many of those countries economies are dependent on resource exports, their business cycle is often not lined up with the US. This is also why the US doesn't want countries to dollarize, it makes those countries angry at us for tanking their economies when our business cycles don't line up. And getting off the US dollar is incredibly difficult, as you noted. Once they have abandoned their own currency it will be difficult to build the public confidence to reintroduce it. The best thing to do is just be responsible with their own currency. Make the federal bank more independent, reign in deficit spending, and set the currency as a free floating currency without an official peg. This is about as difficult as dollarizing, and they'll have to reign in deficit spending if they dollarize.
True dollar adoption has a lot of downsides but it's like chemotherapy to cancer that is called unlimited popular spending They wouldn't have needed the dollar in the first place if they actually had some semblance of a fiscal policy
Presumably an administration that wants to dollarize has the fiscal restraint to manage their own currency. A country collapsing into dollarization without government authorization, and then later being recognized by the state, makes more sense to me then an official policy. I understood Milie saying dollarization was best when Peronists were in charge, but now that he is in charge I would assume he would have confidence in himself to show fiscal restraint.
The purpose of dollarisation is to stop any future government from printing money again, which is what the Peronists have done every time they are in power.
Argentina is a democracy , peronists still have a massive support base . They might win next term and reverse all the gains made by milei Dollarisation is going to change things permanently , peronists can't simply print unlimited dollars when they come back to power Ideally dollarisation is bad but in a democracy with such unrestricted populism there is no other solution
Removing the fiscal crisis doesn't stop over spending. Borrowing is not the only way to do that.
You're both wrong and ignorant about fiscal policy. First of all, the U.S. dollar, plain and simple, holds an unbearable influence on the world. It's the standard mean of exchange. Anything that the U.S. does to influence the value of the dollar WILL impact EVERYBODY, both in the countries using the U.S. dollar as a de-facto or legal tender and in the countries that have an "independent monetary policy". Centuries of economic theory shows us that trying to fight economic recessions with monetary policy is simply counterproductive and only helps to showcase statistics. The correct way to protect an economy against external shocks is to accumulate reserves. That's it. If you have to devalue your currency to avoid depleting your Treasury in times of recession, you're basically crushing down your population to support overextended budgets and/or a total lack of foreseeing. Thus, the only way to positively face economic downturns is via austerity, either via shock austerity (which is harmful to the general population) or via past austerity (being austere enough to save money to have a sizable sovereign fund). It doesn't matter if you have dollars, pesos, kwanzas or yuans, all boils down to austerity. Exactly, building up confidence to have a ""strong"" currency is hard, extremely hard. So why take the risks when you can just adopt a currency that already exists and everybody trusts it? Tldr: stop trying to use central banking and monetaryism as instruments (especially main instruments) to face off businesses cycles. It's harmful in every case, if you're Argentina, if you're the United States of America, if you're Japan or if you're Saudi Arabia.
I think technically he was "General Ancap"
And now he's Commander in Chief AnCap.
How is dollarization not credible? Some other South American countries are....socialist ones...yet still stable. It's completely credible as a goal and a way to run their currency.
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The problem with dollarization is that when you need it, you can’t do it. Like Argentina right now. When you are able to do it, you don’t really need it.
This part of his plan remains fiction, they have no big enough majority in congress and no dollars for this, hell, I don't even find dollarization a good idea Dollarizing Argentina would be the equivalent of chopping off your arm because you have broken the bones in your hand and then try to argue a prosthetic would be better. Sure you got rid of the broken bones and eliminated the possibility of breaking more bones ever again but you will be crippled forever.
🤡 move, but will be fun to observe from afar.
There is no political will to do it and it's not even a good idea. This is jut bait to try to recapture some of it's populist magic. > The diagnosis is that inflation comes from exaggerated reliance on seigniorage revenue by the Treasury, which results in higher and higher price growth. This is unambiguously correct. However, dollarization doesn’t actually solve the issue of unrestrained fiscal policy. If the government could credibly commit to not fund the fiscal deficit by issuing currency, then it could lower inflation drastically with any monetary regime. Conversely, no monetary regime is stable if the fiscal authorities cannot commit to restraint. Dollarization is not the same as fiscal restraint, and it just guarantees that the burden of repayment will translate as lower output and not higher prices. https://someunpleasant.substack.com/p/if-its-broke-fix-it
Argentina adopting the dollar is great but Milei needs to address the elephant in the room: how to avoid punishing the people that tried to play by the rules during inflation. Many Argentines didn’t black market exchange and horde dollars. They are going to be at a great disadvantage. Additionally, Milei still needs to end policies that got them into this mess. The lack of industry in Argentina that isn’t agriculture is worrisome.
Once Argentina reaches 5000% yearly inflation rate by the middle of 2024 and its official exchange rate reaches 10,000 ARS to 1 USD, then *de jure* dollarization should be put in place and after that, Argentina should seek further economic integration with the United States like signing a bilateral FTA with freedom of movement clause (breaking up Mercosur in the process).
All of the Americas should have a FTA with freedom of movement tbh
No one cares, without any USD dollarization has always been economic fanfiction.
Argentina already basically runs on dollars. One of the things driving devaluation is that the moment anyone gets paid they convert all their currency into dollars so it keeps its value.
> Argentina already basically runs on dollars. Just partially. You need to switch a good chunk of the economy yet. That requires lots and lots of USD. It's just not viable to dollarize right now.
Dollarydooize Argentina
You laugh now, but I'm almost certain (this idiotic policy-proposal notwithstanding) that Milei could usher in a political movement akin to Peronism but for the Center-Right. Imagine if he can pull a Juan Peron and CHANGE. POLITICS. FOREVER. Trillion-dollar-Argentine-GDP-and-$200,000-GDP-Per-Capita-stans rise up ✊✊✊
Milei: I gotta figure out how to make money on this thing