Economy Dollarization of Argentina 101 - Can we agree on what it means and how it would be accomplished?

[fetch rover]

Call me stupid but I asked my husband who lived in Argentina many years ago before we got married how this would work and what It means. He just told me they want to change everything to US dollars but told me it would be nearly impossible. I'm trying to do research to understand this as we may move there in a few months. Here is my take. Is this right?

I Imagine Argentina going through a big change in the way they use money. Some people are talking about "dollarization," which means using the US dollar instead of their own currency, the peso. This idea has been tried by a few other countries before it seems.

Here's the twist: In this story, the Argentine government plays a starring role. They decide to get rid of their own money, the peso, and choose the US dollar instead. The interesting part is how they plan to do it. They want to buy all the pesos people have with them at a special rate they decide, which is 1 US dollar for every 800 Argentine pesos.
So, all the buying and selling happening in the country starts following this new rate – $1 USD equals $800 ARS. It's different from the old rate, which was $1 USD for $400 ARS before President Milei devalued the official rate. This shift makes people who have pesos think about what it means for them.

This story leaves me with questions and speculations about what could happen next. It's like watching an economic drama unfold, with the audience wondering about the twists and turns in this potential money makeover. Is my take correct?

 

[Finance Prof]

Imagine a world where Argentina decides to simplify things when it comes to money. In this story, they say goodbye to exchange rates and their own currency (Argentine peso ($ARS). Instead, they choose the US dollar for everyday transactions, making it easy for people to use dollars at ATMs and supermarkets. No more dealing with Western Union or special trips on Buquebus for currency exchanges.

The twist? Now, inflation, the rise in prices over time, is linked to decisions made by the US Federal Reserve Bank. It's like Argentina is taking a new approach to how they handle money matters. The story leaves us wondering how this change will impact the daily lives of people in Argentina and what other surprises might come with this bold move.

 

[sergio]

IF this happens it sure won't happen soon. It would take a while to accomplish and HOW it gets accomplished no one really knows.

 

[fetch rover]

OK I think I got it!

In this simplified world, Argentina has decided to use regular US dollar bills of all denominations for everyday transactions. No more dealing with special "cara grande" brand new untorn and unstained $100 USD bills, just regular money like you'd use anywhere. It's like they've chosen to keep things simple and straightforward.

Great job understanding the idea! I'm proud of myself. It sounds easier said than done!

 

[sophos]

Oh, it's a real brain teaser, isn't it? The Argentine government, in its infinite wisdom, plans to get those dollars probably from a magical money tree or the treasure chest at the end of the rainbow. Because, you know, finding dollars is as easy as ordering takeout. They've got this whole economic alchemy thing figured out. Good luck to them! The official exchange rate is now 850 pesos to $1 US dollar.

Dólar hoy, cotización del dólar, precio del dólar, dólar blue, precio histórico del dólar, valor del UVA | Dolarito.ar

Seguí la cotización del dólar minuto a minuto, compara cotizaciones, visualiza los valores históricos, conocé el precio del dólar, evolución del valor UVA

www.dolarito.ar

 

[Canada Goose]

Call me stupid but I asked my husband who lived in Argentina many years ago before we got married how this would work and what It means. He just told me they want to change everything to US dollars but told me it would be nearly impossible. I'm trying to do research to understand this as we may move there in a few months. Here is my take. Is this right?

I Imagine Argentina going through a big change in the way they use money. Some people are talking about "dollarization," which means using the US dollar instead of their own currency, the peso. This idea has been tried by a few other countries before it seems.

Here's the twist: In this story, the Argentine government plays a starring role. They decide to get rid of their own money, the peso, and choose the US dollar instead. The interesting part is how they plan to do it. They want to buy all the pesos people have with them at a special rate they decide, which is 1 US dollar for every 800 Argentine pesos.
So, all the buying and selling happening in the country starts following this new rate – $1 USD equals $800 ARS. It's different from the old rate, which was $1 USD for $400 ARS before President Milei devalued the official rate. This shift makes people who have pesos think about what it means for them.

This story leaves me with questions and speculations about what could happen next. It's like watching an economic drama unfold, with the audience wondering about the twists and turns in this potential money makeover. Is my take correct?

NO need to even mention the 400 pesos to $1US as that # is meaningless now. It shouldn't even come into discussion as it was a fake artificial exchange rate

 

[Vero]

Ah, the mystery of the missing dollars! It's like trying to find a needle in a haystack, or in this case, a pile of pesos. Maybe Milei has a secret stash hidden under his bed, or perhaps the BCRA is planning a daring heist on the international currency bank. Either way, it sounds like a real-life magic show – now you see the dollars, now you don't! Let the economic illusions continue!

 

[Avocado]

Ah, the mystery of the missing dollars! It's like trying to find a needle in a haystack, or in this case, a pile of pesos. Maybe Milei has a secret stash hidden under his bed, or perhaps the BCRA is planning a daring heist on the international currency bank. Either way, it sounds like a real-life magic show – now you see the dollars, now you don't! Let the economic illusions continue!

Ah the great Milei LIE. Poor voters that voted for him. They all believed the Dollarization LIE. It will never happen. Poor suckers.

 

[Swowbird]

The objective is clear, yet the question persists: from whence do Milei and the BCRA procure these funds, as has been deliberated by myself, fellow forum participants, and individuals of higher echelons within our economic hierarchy?

In November, the approximation indicated a requirement of approximately $45 BILLION dollars to effectuate the dollarization of the economy at the Blue rate. For the sake of argument, let us presume that this figure has remained static in either direction.

Our current predicament remains distant from the feasibility of dollarization. Presently burdened with a debt of $16 BILLION dollars, a consequence of the Petersen Energia Inversora, S.A.U. v. Argentine Republic ruling (https://www.expatsba.com/threads/ar...damages-over-ypf-nationalization.55/#post-198) further complications arise as the IMF opposes the notion of dollarization. This week witnesses ongoing negotiations between Milei and the IMF, while China refrains from facilitating the currency swap due to diplomatic tensions, thereby hindering progress. Consequently, any predetermined timeline for dollarization should be revised, given our failure to meet the requisite conditions.

Dollarization, if pursued at a more favorable exchange rate or through alternative approaches such as the model employed in 2001, may present a more viable option. However, such scenarios appear improbable unless confronted with severe inflationary pressures, prompting a radical shift such as a 5,000:1 exchange rate and an abrupt transition to dollarization.

 

[Wally]

Oh, picture this: China, the ultimate currency swap fairy godmother, generously granting Argentina the magical power to dollarize! Because, obviously, they're in the business of spreading financial cheer and granting wishes. Like, who wouldn't want a slice of that whimsical currency cake, right? Hilarious, isn't it?

 

[Vince]

In the latest developments from the International Monetary Fund (IMF), a cooperative stance with the government has emerged. Argentina has been granted a waiver, coupled with a disbursement of US$3 billion to manage impending repayments. It's worth noting that the proposed resolution for the $16 billion YPF debt has been discussed in a separate thread and can, therefore, be temporarily set aside for consideration.

Javier Milei tiene el apoyo de Kristalina Georgieva y en Gobierno asumen que el FMI hará un desembolso de 3.000 millones de dólares en enero

Durante una reunión informal del board, la directora gerente del Fondo se mostró optimista con el plan de ajuste de la Argentina y es probable que haya un waiver que permita superar la revisión pendiente de 2023

www.infobae.com

Milei aseguró que creará la “tasa Kicillof”, un impuesto para pagar los USD 16.000 millones del juicio de YPF en EEUU

El Presidente anticipó que se está trabajando en la propuesta de un “bono perpetuo” que afrontarían todos los argentinos “para pagar el desaguisado de un amateur”, en referencia al gobernador bonaerense y ex ministro de Economía

www.infobae.com

El Banco Central compró USD 90 millones en el mercado y lleva 15 ruedas consecutivas con saldo a favor

La entidad monetaria totaliza compras por USD 2.986 millones en el mercado de cambios desde el 11 de diciembre último. Las reservas subieron a USD 23.455 millones, un máximo desde el 30 de octubre

www.infobae.com

While the current administration has diligently increased dollar reserves, reaching $23 billion, the sustainability of this upward trajectory remains uncertain throughout 2024. Notably, since October, it has been explicitly communicated that the prospect of dollarization should not be anticipated before 2025. The period until then is marked by a considerable amount of unpredictable developments. Moreover, the fate of the DNU+Omnibus package in Congress or Senate, containing pivotal components for fortifying USD reserves and potentially steering towards economic dollarization, is yet to unfold. The landscape ahead appears to be characterized by turbulent waters, and it remains to be seen how these intricate financial and legislative dynamics will unfold in the coming years.

Javier Milei dijo en cuánto tiempo implementará la dolarización en la Argentina

Durante la conferencia de prensa de este miércoles, Javier Milei volvió a ratificar que avanzará con la dolarización.

www.ambito.com

The prospect of expeditiously addressing challenges, akin to swiftly removing a band-aid, appears to align with their strategic approach. Despite initial skepticism regarding rumors suggesting an accelerated timeline, potentially linked to mitigating the aftermath of a so-called "trampa de febrero" (February trap), recent developments have challenged preconceptions.

The notion of promptly resolving the Liliqs issue without resorting to additional emissions, previously deemed implausible by many, has witnessed a paradigm shift in perception within a matter of weeks. This dynamic environment underscores the fluidity of economic strategies, prompting a reevaluation of conjectures and an acknowledgment of the unforeseen trajectories unfolding within the financial landscape.

 

[Bharat]

I don't know anything about economy and exchange rates. Maybe this is a stupid question but I'm just wondering, like, why can Colombia manage with a 4000 peso to $1 US Dollar exchange rate and Paraguay with a 7300 Guarani to $1 US Dollar, but Argentina struggles with a 1000 peso to $1 US Dollar? And, like, did Zimbabwe actually get any better by using the Dollar now? I'm kind of confused about these currency things.

 

[All the Answers]

I don't know anything about economy and exchange rates. Maybe this is a stupid question but I'm just wondering, like, why can Colombia manage with a 4000 peso to $1 US Dollar exchange rate and Paraguay with a 7300 Guarani to $1 US Dollar, but Argentina struggles with a 1000 peso to $1 US Dollar? And, like, did Zimbabwe actually get any better by using the Dollar now? I'm kind of confused about these currency things.

You can't just compare the #'s. It's like night and day.

Colombia and Paraguay distinguish themselves from Argentina through the absence of capital controls and the implementation of a flexible exchange rate system. Unlike Argentina, which operates under Milei's management utilizing a managed float regime, both Colombia and Paraguay allow their currencies to fluctuate freely in the market without direct government interference. Argentina's current approach involves the Central Bank's intervention in the foreign exchange market to uphold a fixed monthly devaluation rate of 2%.

 

[Betsy Ross]

I don't know anything about economy and exchange rates. Maybe this is a stupid question but I'm just wondering, like, why can Colombia manage with a 4000 peso to $1 US Dollar exchange rate and Paraguay with a 7300 Guarani to $1 US Dollar, but Argentina struggles with a 1000 peso to $1 US Dollar? And, like, did Zimbabwe actually get any better by using the Dollar now? I'm kind of confused about these currency things.

It's not that simple to compare currencies by just looking at the numbers. A lower value doesn't necessarily mean it's worse or better.

 

[Bharat]

It's not that simple to compare currencies by just looking at the numbers. A lower value doesn't necessarily mean it's worse or better.

I understand I think now. So, Colombia and Paraguay let their currencies float. Now, the thing is, why can't Argentina do the same with the ARS? Why go for Dollarization? And, by the way, did Zimbabwe see any improvement by adopting the Dollar?

 

[oil rush]

I understand I think now. So, Colombia and Paraguay let their currencies float. Now, the thing is, why can't Argentina do the same with the ARS? Why go for Dollarization? And, by the way, did Zimbabwe see any improvement by adopting the Dollar?

I understand I think now. So, Colombia and Paraguay let their currencies float. Now, the thing is, why can't Argentina do the same with the ARS? Why go for Dollarization? And, by the way, did Zimbabwe see any improvement by adopting the Dollar?

Well, to make it simple, if Argentina lets the Argentine Peso float and everyone rushes to get dollars, it could lead to even worse inflation than we have now. Imagine if the exchange rate shoots up, salaries drop, and the whole economy goes into a nosedive.

Milei supports dollarization, but he's not okay with doing it recklessly. If we go for a free float, it's like instantly turning the country into a dollar-based system. However, it creates a lot of problems because people with dollars would stop spending, and those without dollars would struggle to afford even basic things, like food. It's kind of like a pressure cooker situation that could cause a lot of social and economic issues.

Dollarization means using the US dollar as our official currency. This brings stability because we can't just print more money like we do with pesos. In Argentina, this could stop us from making more pesos to cover our expenses or manipulate the debt market with extra cash.

When we use the US dollar, our money supply is controlled by the US Federal Reserve, not us. We can only spend what we actually have. If we need more dollars, we have to get them by borrowing or earning them through things like taxes.

But here's the catch – dollarization alone doesn't solve everything. Milei says we need to make other changes too, like fixing the underlying issues causing our economic problems. For example, Zimbabwe tried dollarization, but they still had issues, so they brought back their own currency in 2019. The point is, just switching to the dollar won't fix everything unless we also change how we do things in the long run. That's the whole idea according to Milei.

 

[Bharat]

Well, to make it simple, if Argentina lets the Argentine Peso float and everyone rushes to get dollars, it could lead to even worse inflation than we have now. Imagine if the exchange rate shoots up, salaries drop, and the whole economy goes into a nosedive.

Milei supports dollarization, but he's not okay with doing it recklessly. If we go for a free float, it's like instantly turning the country into a dollar-based system. However, it creates a lot of problems because people with dollars would stop spending, and those without dollars would struggle to afford even basic things, like food. It's kind of like a pressure cooker situation that could cause a lot of social and economic issues.

Dollarization means using the US dollar as our official currency. This brings stability because we can't just print more money like we do with pesos. In Argentina, this could stop us from making more pesos to cover our expenses or manipulate the debt market with extra cash.

When we use the US dollar, our money supply is controlled by the US Federal Reserve, not us. We can only spend what we actually have. If we need more dollars, we have to get them by borrowing or earning them through things like taxes.

But here's the catch – dollarization alone doesn't solve everything. Milei says we need to make other changes too, like fixing the underlying issues causing our economic problems. For example, Zimbabwe tried dollarization, but they still had issues, so they brought back their own currency in 2019. The point is, just switching to the dollar won't fix everything unless we also change how we do things in the long run. That's the whole idea according to Milei.

Thank you @oil rush. You have a good way to explain things. But I'm still confused. Why is it that if Argentina lets the peso float, it could skyrocket to a million, whereas in the cases of Colombia and Paraguay, their floating currencies only went up to 4000 and 7300, respectively?

 

[Betsy Ross]

Thank you @oil rush. You have a good way to explain things. But I'm still confused. Why is it that if Argentina lets the peso float, it could skyrocket to a million, whereas in the cases of Colombia and Paraguay, their floating currencies only went up to 4000 and 7300, respectively?

The fundamental issue at hand is rooted in the fiscal deficit and the practice of printing excessive amounts of money.

 

[Bharat]

Thank you @oil rush. You have a good way to explain things. But I'm still confused. Why is it that if Argentina lets the peso float, it could skyrocket to a million, whereas in the cases of Colombia and Paraguay, their floating currencies only went up to 4000 and 7300, respectively?

Let me throw in my wild, wild guess. So, Colombia and Paraguay lucked out because they floated their currencies way back, like 20 years ago when they were dealing with regular inflation, not the hyper kind. Argentina, on the other hand, kind of missed the boat. They waited until they hit hyperinflation status. Floating the ARS now seems like a no-brainer; it's like elementary math predicting a leap straight to the 1,000,000 peso Dollar. Nice going, right?

 

[JonToronto]

Thank you @oil rush. You have a good way to explain things. But I'm still confused. Why is it that if Argentina lets the peso float, it could skyrocket to a million, whereas in the cases of Colombia and Paraguay, their floating currencies only went up to 4000 and 7300, respectively?

Colombia and Paraguay have been better at managing their debts, they didn't face the same economic challenges as Argentina, they don't have strict currency controls like Argentina's "cepo," and importantly, their people trust and save in their own currencies.

Can we tackle inflation without switching to the dollar? Sure, it's possible, but it takes more time. You could make changes in the way the Central Bank works and follow Milei's pro-market reforms, like having a positive real interest rate, but it's a slower process.

Other countries have fixed their economic issues without dollarization. However, Milei might be pushing for dollarization not just for economic reasons but also as a kind of trap. If he loses in 2027, it might become socially unacceptable to go back to the peso because people wouldn't want to give up the stability of the dollar. This could make some of his reforms more permanent.

But who knows, things are still up in the air, and I'm not entirely sure they'll be able to switch to the dollar given the current situation. We'll have to wait and see.