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

[Avocado]

If, hypothetically, Milei's dollarization plan were to go through (which seems unlikely), would there be anyone left willing to buy Argentine exports?

 

[All the Answers]

Upon scrutinizing Argentina's current export portfolio, primarily comprised of commodities with prices determined by global markets already in USD, one might conjecture that the buyers would likely persist without substantial alteration even in the event of Milei's hypothetical dollarization.

 

[Bharat]

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.

But I doubt this could even happen what Milei said during the election. Dollarization when? next month? a year, 2 years? or is this 10 years from now. Did Milei or his team explain this in detail to the Argentine people? Did they ask before they voted to him? I wasn't here so I don't know but I'm wondering if it was all laid out? I would think before people voted for him, they would understand difficult things like this. Looking back now it seems like even professional economists didn't understand how it could be done. And no one has figured out to fix the Argentine economy for many decades?

 

[Jeep]

First, how will we get the money to make this happen? And second, will the legal system allow it? These seem like the big challenges for dollarization. Plus, there's a chance the dollar might not stay strong, causing prices to go up. I'm also worried about having to follow the rules of U.S. money decisions. But I like Milei's idea. He suggests keeping the Peso as our main money but letting people choose how they get paid - in different currencies or even by trading things.

 

[Vince]

In simple terms, the talk about dollarizing Argentina comes down to the fact that the central bank doesn't have enough money or assets, like the Argentine Peso (ARS), to buy the amount of U.S. dollars needed for the country's economy. Because the central bank is seen as a risk for lending, they can't easily borrow the dollars without putting up a lot of valuable stuff as collateral.

One way to slowly start using dollars is by gradually using them for buying and selling goods in specific industries. But since I'm not getting paid to figure this out anymore, I'll just wish President Milei good luck.

 

[old fart]

I don't get why everyone's excited about dollarization. It basically means admitting that our new adopted country isn't mature enough to handle its own money. It's like giving up control to a country that doesn't really care about us, and we can't influence their decisions.

Having our own currency lets us make our own financial rules and control things. With our currency, we can use tricks to handle tough times better. Dollarization doesn't add anything special that we can't do with our own money if we want to. It just makes us follow strict rules, but we should be disciplined with our money regardless of the currency. Just stop printing too much, and you can have a stable currency. It's not that complicated of an idea.

 

[Betsy Ross]

I don't get why everyone's excited about dollarization. It basically means admitting that our new adopted country isn't mature enough to handle its own money. It's like giving up control to a country that doesn't really care about us, and we can't influence their decisions.

Having our own currency lets us make our own financial rules and control things. With our currency, we can use tricks to handle tough times better. Dollarization doesn't add anything special that we can't do with our own money if we want to. It just makes us follow strict rules, but we should be disciplined with our money regardless of the currency. Just stop printing too much, and you can have a stable currency. It's not that complicated of an idea.

You're absolutely right. The problem is, the Argentine government messed up by not being careful with money. They kept printing too much, and that's why things got so bad.

It's kind of like what's happening in the U.S. too. They printed a ton of money for things like COVID relief and paying for wars. But the big difference is how well a country can handle these changes and how fast they happen.

 

[All the Answers]

If, hypothetically, Milei's dollarization plan were to go through (which seems unlikely), would there be anyone left willing to buy Argentine exports?

The Chicago Mercantile Exchange already uses dollars, so when you buy soybeans, it doesn't matter if it's from Argentina, Paraguay, or Brazil – you're paying in USD. I don't think that part would change. But, if our local market starts using dollars like it did in the 90s, it could make us less competitive.

But I doubt this could even happen what Milei said during the election. Dollarization when? next month? a year, 2 years? or is this 10 years from now. Did Milei or his team explain this in detail to the Argentine people? Did they ask before they voted to him? I wasn't here so I don't know but I'm wondering if it was all laid out? I would think before people voted for him, they would understand difficult things like this. Looking back now it seems like even professional economists didn't understand how it could be done. And no one has figured out to fix the Argentine economy for many decades?

He only gave a clear timeframe for his term, which ends in 2027, but in general, he talks about wanting to achieve it within 1-2 years, possibly before the 2025 midterms. I don't think it's likely to happen this year. Instead, there's a growing acceptance of having two currencies circulating, but that's not exactly the same thing.

As inflation keeps going up and the dollar stays relatively "cheap," it becomes more expensive to switch to using the dollar. In November 2023, the estimated cost was around $45 billion, and I doubt it has gone down. If anything, it might be higher now due to the increased cost of living.

First, how will we get the money to make this happen? And second, will the legal system allow it? These seem like the big challenges for dollarization. Plus, there's a chance the dollar might not stay strong, causing prices to go up. I'm also worried about having to follow the rules of U.S. money decisions. But I like Milei's idea. He suggests keeping the Peso as our main money but letting people choose how they get paid - in different currencies or even by trading things.

I've been asking Milei and his supporters this question from the start: we owe the IMF $45 billion, it'll cost about $45 billion to switch to dollars, and we also owe $16 billion to YPF nationalization shareholders. That's already $106 billion, not counting other debts. But we're struggling to pay the IMF, so how's this all supposed to work?

As for the courts, this is just my guess, but I think they won't want to stir up trouble. If somehow we get the money, they might lean towards what works best and ignore complaints, especially with the rising trend of having two currencies. Carlos Melconian, who was Bullrich's Economy Minister candidate, argued for this, and it seems smarter because it gives the country flexibility. It's already common worldwide (like paying in USD for electronics and local currency for groceries), and we already do it with real estate, used cars, and hotel stays here in Argentina, so it's not unheard of.

I don't get why everyone's excited about dollarization. It basically means admitting that our new adopted country isn't mature enough to handle its own money. It's like giving up control to a country that doesn't really care about us, and we can't influence their decisions.

Having our own currency lets us make our own financial rules and control things. With our currency, we can use tricks to handle tough times better. Dollarization doesn't add anything special that we can't do with our own money if we want to. It just makes us follow strict rules, but we should be disciplined with our money regardless of the currency. Just stop printing too much, and you can have a stable currency. It's not that complicated of an idea.

This is the way I like better. Just think about what it would have been like to switch to dollars during COVID! You can't just print money when there's a crisis or to help with growth. Everything relies on taxes and debt in another country's currency, which does force the government to be careful with spending – and that should be the top priority.

Some folks have brought this up before, but the reason why dollarization seems so tempting is because it looks like a quick fix. It's seen as a shortcut, something that Argentina and Argentines always hope for when faced with a tough decision.