Dollarization

[TWB103]

Dollarization just provides a base of economic stability. It doesn't fix a country's problems per se. From that base the country still needs to go to work to fix it's problems.

 

[antipodean]

I cannot even fathom the scale of this project. And the cost of it, of course. I don't think it's possible, but if there will be attempt, it will prove extremely harmful to population, because government will literally need to steal from people, to pull it through. You need to borrow all the money in the circulation, from the Fed. If you can do that, why would you do it?

And how is that different to Argentina up until now where the governments (plural) steal from people through devaluations and printing money to cover spending deficits leading to inflation and currency distortions?
All those little pesos floating around are borrowed money too.

Why the double standard?

 

[argeiCanuck]

Dollarization just provides a base of economic stability. It doesn't fix a country's problems per se. From that base the country still needs to go to work to fix it's problems.

Exactly my position.
Simply FLOAT the peso. I don't believe the hype that it's insurmountable.

Then go tackle the main problem. Changing people who are duped for decades.

 

[mikic007]

And how is that different to Argentina up until now where the governments (plural) steal from people through devaluations and printing money to cover spending deficits leading to inflation and currency distortions?
All those little pesos floating around are borrowed money too.

Why the double standard?

The pace is crucial. Hypothetically it's the same, in real life it isn't. I don't know where you see double standard, like I would advocate for slow dying through inflation. No, I'm advocating to address the problems causing the inflation, because if you solve those, dolarization doesn't have any sense any more.

Why dolarization is appealing has it's roots in corralito, which shattered all trust in banks. It's not about peso, it's that everyone wants to secure their savings outside of Argentine system, and this isn't possible in pesos. So with dolarization you'll solve inflation, but money still won't stay in the country. And now they want to repeat it, although this time nothing is in the banks, so they will shatter all remaining faith in the government/state.

What Argentina needs is more faith in the state and it's systems. You don't get that by removing the currency, you get that by imposing strong hand on all relevant fields, especially taxation. Fixation only on inflation is stupid. You fix that, but there isn't enough money to run the country, what will you do? Not pay workers and pensions? This is the hard part, not inflation. So instead of buzz words we need to see actions towards getting more money through already existing taxes.

What we should speak about is not inflation, but how much money is lost by avoiding taxes, black market etc. We would be talking about billions of dolars. Do we have these figures? If not, why not?

 

[mikic007]

Another silly question:
The pain of devaluation from 400:1 to 800:1 didn't kill us all. Was not exactly a catastrophe. Much much less pain than I expected. Sounds too good to be true. We have already gone through 100% devaluation.

Why not take the next step all the way to 1100:1 the blue rate? Therefore totally FLOATING the peso. Another 50% more devaluation and we are done. Just like that.

Why are we fixating on Dollarization? If it's that simple?

Not that I'm against floating, I just don't agree it wasn't catastrophic already. It's not widely visible yet, and people are hoping on huge salaries adjustments, so there is relative calmness, but for many is already devastating. There was already 20% cut in population spending in December, and only half month was affected, people still holding something from before. But imagine, with such high prices, and 20% lower spending, how much goods people brought home? I would guess around 50%. And it is running for some time, so many already weren't living comfortably, and now they get only half purchase of what they've got before. If that's not catastrophic, I don't know what is.

 

[antipodean]

Dolarization is simply a tool to avoid successive Argentine governments printing money to cover spending deficits and thus ensure economic stability for people and businesses alike. Logic goes that where there is stability, there is more room for real growth. It essentially forces the government of the day to live within its means.

More faith in the state and systems and more taxation has been what politicians have been advocating since the 1940s resulting in only decline and failures ever since then leasing to the problems you see today and highlight. It just doesn’t happen in reality because politics in Argentina just don’t have self-discipline.

Btw, you give people a currency that holds its value and they trust then people start again to use banks and financial institutions, like in any stable economy, to transact, save and invest in - making it far easier to tax rather than paying people in Monopoly money so they just end up running to the nearest cueva and take that taxable money out of government reach in order to do their transactions, savings or investments. Seems dollarization will also help achieve solutions to the issues you present, no?

 

[mikic007]

Could be, of course, but I am pretty sure we will not see it firsthand. I am not inclined to hypothetical solutions, that might work, especially the ones, that are hard to retract, and can have very devastating consequences. Everyone is stating how bad politics in Argentina is, so they need some restriction. If that's so, no amount of dollarization will fix anything, like the peg didn't in nineties ...

And why not euroization? It would be much better, since there is more investment from EU than USA, and more trade also. It would be logical to go with €, no? Also, it is influenced by various countries with different needs and situations, thus a bit less problematic to go with.

 

[antipodean]

And why not euroization? It would be much better, since there is more investment from EU than USA, and more trade also. It would be logical to go with €, no? Also, it is influenced by various countries with different needs and situations, thus a bit less problematic to go with.

Milei is already proposing freedom to do business and transact in whatever currency individuals and businesses agree between themselves to transact. That is already part of the DNU currently before congress, along with hundereds of other law changes allegedly designed to "fix" the overall system. Dolarization is only about how the state itself would transact in the majority of its transactions (and thus, how the majority of locals would by default transact unless they chose to transact in a different currency) and not be able to issue currency of its own. Dolarization is not being proposed in isolation or touted as the magic-bullet all by itself by anyone.

I'd prefer Swiss Francs than Euros or Dollars, but that is just me.

Hypothetical solutions that might (not) work abound in all directions, including those arguments against dollarization and against Milei. If none of us trust hypothetics then best to simply do nothing at all and simply adopt the position of an ostrich with its head in the sand.

 

[argeiCanuck]

We seem to agree that the main and only purpose of Dollarization is to prevent the government from printing pesos. (nothing to do with earning growth productivity .....). Fair enough. I will buy that.

Milei's plan has been tried before. Carbon copy Menem plan. Privatization. Peg the peso to the Dollar (the closest you can get to Dollarization). You do know what happened. No? I will remind you: 2001 the government walked into the bank vault and simply helped themselves). Just like that. Period. Case closed. Reminds me of Harrison Ford(don't know how to upload his video scene)

Let us be real. Government has 6 ways to Sunday to get you. They can not be restricted.

Endless abundance and rich resources for decades shaped the free spirited life style of Argentines ,,, they are no work slaves. And rightly so they did afford it for decades ,,,,,, and I believe they still can afford the same for many many more decades to come.

 

[antipodean]

Milei's plan has been tried before. Carbon copy Menem plan. Privatization. Peg the peso to the Dollar (the closest you can get to Dollarization).

It has actually not been tried before and not the same as pegging the peso to the dollar. Nor is it a carbon copy of the Menem plan who focused on growing the size (and thus expenses) of the state and not shrinking the size of the state as per the Milei plan.
Convertability meant that Argentina still had a local currency of its own under government control. Those exact same older 100 peso notes you see from time to time used to be worth US$100 until they decided one day to the next it was worth US$70 (and so on). When the country faced a recession, as all countries will from time to time, the government still needed to pay for all its expenses and de-pegging the exchange rate and printing pesos was the only way to pay for it in order to have any hope of staying in power without resorting to unpopular austerity measures, leading to the crisis of 2001/2 and wiping out peoples savings and purchasing power. With Dollarization, this would not be an option since the peso would simply not exist and Argentina could not print dollars (but it could still borrow them, presumably).

IMO, the only way for "Dollarization" to actually work in the long run (and avoid a future cash-hungry populist government from just as easily inventing and imposing a new currency of its own) is through a constitutional amendment that states Argentina shalt not have a currency of its own.