{"id":4703,"date":"2023-10-23T19:26:10","date_gmt":"2023-10-23T19:26:10","guid":{"rendered":"https:\/\/infundpros.com\/business\/javier-milei-wants-argentina-to-swap-the-peso-for-the-us-dollar-heres-what-that-could-mean\/"},"modified":"2023-10-23T19:26:29","modified_gmt":"2023-10-23T19:26:29","slug":"javier-milei-wants-argentina-to-swap-the-peso-for-the-us-dollar-heres-what-that-could-mean","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=4703","title":{"rendered":"Javier Milei wants Argentina to swap the peso for the US dollar. Here\u2019s what that could mean"},"content":{"rendered":"
\n

\n A chainsaw-wielding, self-professed \u201canarcho-capitalist\u201d is now one step closer to overhauling Argentina\u2019s beleagured economy \u2014 by throwing out the nation\u2019s peso currency and adopting the US dollar as legal tender.\n <\/p>\n

\n Javier Milei, a far-right libertarian presidential candidate, has made \u201cdollarizing\u201d Argentina a signature proposal of his campaign, hailing it as a cure for the country\u2019s hyperinflation problem. It\u2019s a step other countries have taken, just none the size of Argentina.\n <\/p>\n

\n Milei, a former financial analyst, came second in the first round of the election on Sunday behind Sergio Massa, Argentina\u2019s incumbent left-wing economy minister. The two candidates are set to compete in a run-off vote next month.\n <\/p>\n

\n He may now try to gain support from centrists by moderating his stance on the economy. JP Morgan analysts noted that he did not use the word \u201cdollarization\u201d during a speech Sunday. But markets will be on tenterhooks for what they say is likely to be a tight race.\n <\/p>\n

\n For years, Argentinians have preferred to pay for many goods and services in greenbacks, rather than with their own collapsing currency, as part of an informal \u201cblue dollar\u201d currency market.\n <\/p>\n

\n The value of the peso has plummeted 858% against the US dollar over the past five years as the central bank printed more of the currency to help the country\u2019s spendthrift government avoid defaulting on its debts. That, in turn, fueled rampant price rises.\n <\/p>\n

\n Annual inflation topped 138% in September, its highest level in 32 years, according to data from the National Institute of Statistics and Censuses.\n <\/p>\n

\n But full and formal dollarization would push the economy into whole new territory. According to analysts, it would also be a gargantuan task.\n <\/p>\n

\n To dollarize its economy, Argentina would need to exchange all pesos held by its people and businesses for US dollars, and assign a dollar value to all of its assets and contracts.\n <\/p>\n

\n Such a move would effectively disband Argentina\u2019s central bank, handing the reins of monetary policy \u2014 that is, the power to set interest rates and print more money \u2014 over to the US Federal Reserve. The Fed would continue to set the cost of borrowing based on the needs of the US economy, not Argentina\u2019s.\n <\/p>\n

\n Milei has argued that surrendering autonomy to Washington is a necessary step to instil discipline into Argentinian policymakers. It would mean Argentina would no longer be able to print money.\n <\/p>\n

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\n <\/source><\/source><\/source><\/source><\/picture>\n <\/div>\n<\/div>\n

\n \u201cThat\u2019s been the problem for Argentina to cover fiscal shortfalls: It gets the copy machine going in the central bank and starts printing money,\u201d Christopher Sabatini, senior research fellow for Latin America at Chatham House, told CNN, adding that dollarization would \u201cimpose fiscal discipline,\u201d helping to cool inflation.\n <\/p>\n

\n Economists at Capital Economics wrote in an August note that dollarized countries El Salvador, Panama and Ecuador show \u201cmarkedly lower inflation than elsewhere in the region.\u201d\n <\/p>\n

\n Kimberley Sperrfechter, an emerging markets economist at Capital Economics, thinks a dollarized Argentina would have little impact on the United States as it is a \u201crelatively minor player\u201d in global trade.\n <\/p>\n

\n \u201c(Argentina\u2019s) a relatively closed economy,\u201d she told CNN. \u201cIt has capital controls so it\u2019s difficult to get money out of (the country).\u201d\n <\/p>\n

\n But dollarization is not a panacea for Argentina\u2019s crisis-stricken economy, analysts say.\n <\/p>\n

\n \u201c(The policy) is seen as this kind of silver bullet that will solve all of Argentina\u2019s problems, and I think that just isn\u2019t correct,\u201d Sperrfechter said. \u201cFiscal policy will still be at the whims of politicians,\u201d she added.\n <\/p>\n

\n While a dollarized economy would likely be protected against rocketing inflation and sharp currency drops, Capital Economics noted, it would become more vulnerable to a process known as \u201cinternal devaluation.\u201d\n <\/p>\n

\n Because Argentina would no longer control its exchange rate, it would be unable to absorb shocks to its economy by lowering the value of its currency. Instead, stabilizing the economy and remaining competitive in export markets would require cuts to wages and prices at home.\n <\/p>\n

\n Even when it keeps a lid on inflation, dollarization does not guarantee against default. Ecuador \u2014 which is one fifth the size of Argentina\u2019s $622 billion economy \u2014 has defaulted on its debts twice since it adopted the greenback in 2000.\n <\/p>\n

\n There\u2019s another significant snag in Milei\u2019s plan: Argentina doesn\u2019t have enough dollars to ditch the peso.\n <\/p>\n

\n According to Capital Economics, Argentina has a $7.5 billion hole in its foreign currency reserves, meaning it owns fewer dollars than it owes to its creditors abroad.\n <\/p>\n

\n \u201cThe central bank doesn\u2019t have enough dollars. They just aren\u2019t there. It\u2019s still got a $44 billion debt with the (International Monetary Fund) which it doesn\u2019t have enough hard currency to pay back,\u201d Sabatini said.\n <\/p>\n

\n
\n \"A<\/source><\/source><\/source><\/source><\/picture>\n <\/div>\n<\/div>\n

\n The government would likely find it difficult to raise the dollars through other means.\n <\/p>\n

\n The IMF has effectively barred Argentina from accessing international markets while it pays back its debts, Sabatini explained. The government would also need to convince its citizens at home and abroad to return their pesos en masse, he said, and to do so calmly to avoid a \u201cwave of speculation\u201d further trashing the value of the local currency.\n <\/p>\n

\n \u201cPeople would need to take wheelbarrows of cash to convert to dollars,\u201d Sabatini said. \u201cThe sheer complexity of what (Milei\u2019s) tossing around as an idea\u2026 is difficult to conceive of on a practical level.\u201d\n <\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A chainsaw-wielding, self-professed \u201canarcho-capitalist\u201d is now one step closer to overhauling Argentina\u2019s beleagured economy \u2014 by throwing out the nation\u2019s peso currency…<\/p>\n","protected":false},"author":1,"featured_media":4704,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":{"0":"post-4703","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\nJavier Milei wants Argentina to swap the peso for the US dollar. 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