Bloomberg - Argentina Takes Steps to Dollarize and Holds Key Rate

The Illusion of Dollarization​

1. Control: Argentina can't print or control U.S. dollars, but it can regulate the Argentine Dollar.
2. Valuation: The Argentine Dollar's value is tied to the MEP (Mercado Electrónico de Pagos) rate, similar to an index fund share.
3. Manipulation: The government can influence its value through market interventions and redemption restrictions.

Comparison to Cryptocurrency​

• It's "tethered" to the U.S. dollar's value.
• Its actual worth depends on the ratio of real dollars backing it to the number in circulation.
• Trust in the currency relies on its redeemability for real dollars.

Potential Risks​

• Risk of a "redemption run" if more Argentine Dollars are converted than backed by reserves.
• Possibility of restrictions on redemptions or transfers abroad (a digital "corralito").

Winners and Losers​

• Neutral: Those conducting domestic commerce in Milei Dollars.
• Winners: Individuals converting pesos or Milei Dollars to physical USD or transferring outside of Argentina.
• Losers: Those converting physical USD or foreign dollars into Milei Dollars.

Future Implications​

1. The potential for another financial crisis looms, this time in digital form.
2. The "blue" dollar market may re-emerge as a representation of true USD value.
3. The Milei Dollar could become a domestic-only currency, similar to the current MEP system.

Jenn said:

But I don't understand. Argentina can't really dollarize can they? I thought they didn't have enough money. Everyone I ask someone I get a different answer.

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Jenn said:

But I don't understand. Argentina can't really dollarize can they? I thought they didn't have enough money. Everyone I ask someone I get a different answer.

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Jenn said:

This is all very very confusing. Why would someone pay in dollars? I guess if the store sets a better exchange rate? Poor consumers. This sounds complicated. I guess people will calculate if they can get a better deal going to a cueva vs. just paying with dollars in their bank accounts?

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• If a restaurant owner wants to charge dollars, they might price their empanada at $5 USD per empanada and 7,000 ARS per empanada, with no connection to exchange rates.
• If a restaurant owner prefers pesos, they might set their empanada at 5,000 ARS per empanada and $8 USD per empanada, again independent of exchange rates.
• If the owner values their empanada in dollars but doesn’t mind receiving pesos, they might price it at $5 USD or 6,500 ARS (adjusting the ARS price based on the official or parallel exchange rates).
• Similarly, if the owner values the empanada in pesos but doesn’t mind dollars, they might price it at 6,000 ARS or $5USD using the same logic.

Pink Panther said:

Sellers are free to set prices based on what they think their product is worth and what they think customers are willing to pay for it. Buyers can choose which price they prefer to pay. For example:

• If a restaurant owner wants to charge dollars, they might price their empanada at $5 USD per empanada and 7,000 ARS per empanada, with no connection to exchange rates.
• If a restaurant owner prefers pesos, they might set their empanada at 5,000 ARS per empanada and $8 USD per empanada, again independent of exchange rates.
• If the owner values their empanada in dollars but doesn’t mind receiving pesos, they might price it at $5 USD or 6,500 ARS (adjusting the ARS price based on the official or parallel exchange rates).
• Similarly, if the owner values the empanada in pesos but doesn’t mind dollars, they might price it at 6,000 ARS or $5USD using the same logic.

Sellers can mix and match pricing strategies however they like. The law doesn’t control or regulate price differences or currency conversions—it only requires that the final amount displayed on the price tag is the amount the customer pays. This means you might see very different pricing policies from one shop to another, as businesses will adjust to compete with each other over time.

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Jenn said:

Thanks! This was a great explanation and I think I understand it now. It still sounds very confusing. It seems like it would just be easier to just either dollarize completely which it sounds like they don't have the money to do. Or just operate with a normal exchange rate like any other country in the world when I travel. This sounds complicated.

What about for tourists? Will they be able to choose to be charged in dollars or pesos?

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import export said:

This isn't really applicable to many people. Joe Schmoe doesn't have dollars. This is mainly for the people that deposited USD with the tax amnesty. The government is trying to get them to use them and making it easier for them. Most I talk to are struggling just to pay the bills. Not sure there are tons of people looking to pay US dollars in Argentina.

I am a Milei fan but starting to get doubtful. Prices are extremely high. Came to visit my sweetheart and talking to many friends they have cut way back on spending. I don't know how the typical person makes it with these high prices.

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