A Dollarization Blueprint for Argentina

This article explores the challenges facing Argentina as President Javier Milei's push for dollarization falters. Despite hopes that switching to the U.S. dollar would stabilize the economy, issues such as high inflation, a dual exchange rate, and economic contraction have hindered progress. The article also examines Argentina’s broader economic landscape, emphasizing the need for increased trade, particularly with China, as a potential solution. Additionally, global trade tensions, particularly between the U.S. and China, could further complicate Argentina’s economic recovery efforts.

Policy Center for the New South, 2022

Last March, a proposal of dollarizing Argentina's economy arrived at its Congress. We summarize here the potential consequences of such a route in case the bill succeeds in getting approval. First, we point out the broad implications of dollarizing an economy. Then, we set out some cases of Latin American experiences with dollarization. Finally, we address the case of Argentina.

1999

2001

The aim of this work is to present in a systematic way elements around the debate on the persistence of a central bank arrangement, currency boards or the Dollarization option. In some special circumstances, both later arrangements could be desirable. They are not a universal panacea in the way to stabilization and sound growth. The case of Argentina in recent decades is analyzed. There, the currency board could be an intermediate step to full Dollarization. Comparing to advanced economies, Latin American inflation in Post World War II to date, was 100 times more volatile, and GDP growth twice more volatile, with more frequent and extreme recessions. A great deal of that volatility was caused by unstable policies. Changes in money

2003

The rise and fall of Argentina's currency board shows the abandonmenlt of the currency board and a sovereign debt extent to which the advantages of hard pegs have bcen default. The crisis can be best interpreted as a bad overstated. The currency board did provide nomilinal outcome of a high-stakes strategy to overcome a weak stability and boosted financial intermediation, at the cost currency problem. To increase the credibility of the hard of endogenous finaicial dollarization, but did not foster peg, the government raised its exit costs, which deepened monetary or fiscal discipline. The failure to adequately the crisis once exit could no longer be avoided. But some address the currency-growth-debt trap into whichi alternative exit strategies would have been less Argentina fell at the end of the 1990s precipitated a run destructive than the one adopted. on the currency and the banks, followed by the This paper-a product of Macroeconomics and Growth, Development Research Group-is part of a larger effort in the group to understand 1ow currency regimes work. Copies of the paper are available free from the World Bank,

The World Economy, 1994

2023

One of the main reasons to dollarize is to eliminate high, persistent, and volatile inflation. However, to be effective, dollarization must generate sufficient credibility, which in turn depends critically on a low expected probability of reversal. In other words, dollarization can be successful if it is an effective commitment device (ECD). Argentina once again faces high, persistent, and volatile inflation. With a looming presidential election politicians and academics are evaluating several options to stabilize prices and put the economy on a path of sustained growth. However, because of acute institutional anomie, which makes non-contingent rules under domestic jurisdiction easily reversible, even the best-intentioned policymakers cannot generate sufficient credibility. The country remains trapped in stop-go cycle of reforms that accelerates its economic decline. The root of the problem can be traced back to populism, which heightened time-inconsistency and then destroyed the formal and informal mechanisms that can reduce it. When acute institutional anomie prevails, an ECD requires surrendering discretion in monetary affairs to a foreign jurisdiction. The paper explores whether dollarization can fulfill such role in Argentina in current circumstances given the country’s history of reform reversal. The evidence suggests that, in the long-run, the strongest insurance against reversal is the support of the electorate, but in the short-run, institutional design can play a critical role.

ICPSR Data Holdings, 2002

SSRN Electronic Journal, 2003

The rise and fall of Argentina's currency board illustrates the extent to which the advantages of hard pegs have been overstated. The currency board did provide nominal stability and boosted financial intermediation, at the cost of endogenous financial dollarization, but did not foster fiscal or monetary discipline. The failure to adequately address the currency-growth-debt trap, into which Argentina fell at the end of the 1990s, precipitated a run on the currency and the banks, followed by the abandonment of the currency board and a sovereign debt default. The crisis can be best interpreted as a bad outcome of a high-stakes strategy to overcome a weak currency problem. To increase the credibility of the hard peg, the government raised its exit costs, which deepened the crisis once exit could no longer be avoided. But some alternative exit strategies would have been less destructive than the one adopted.