Obaca First Argie Black Presidential Candidate 2015

[thorsten]

Borrowing dollars is so outdated. The modern way to do it is to call it 'currency swaps' and use the Yen! Soon, we'll hear a lot about 'los buitres chinos'

 

[sesamosinsal]

Exactly if the dollar was the official currency,like Ecuador, the government couldn't print dollars like the pesos they print now to increase the deficit and Generate Inflation?

There's no inflation in Ecuador?

 

[nicoenarg]

Ecuador has lower inflation (4.5% IIRC). You know, kind of like saying low crime areas are better. No one jumps at that and thinks "well crime is crime, whether the numbers are high or low, what difference does it make!"

 

[sesamosinsal]

Ecuador has lower inflation (4.5% IIRC).

But if there is inflation, there is debasement of the currency. If there is debasement of the currency, then there is monetary stimulus, i.e. increased money velocity. Switching to a currency you don't control doesn't always equate to deflation, as was implied earlier.

But Ecuador's case is special because Ecuador's currency really isn't the dollar...

 

[nicoenarg]

But if there is inflation, there is debasement of the currency. If there is debasement of the currency, then there is monetary stimulus, i.e. increased money velocity. Switching to a currency you don't control doesn't always equate to deflation, as was implied earlier.

But Ecuador's case is special because Ecuador's currency really isn't the dollar...

I don't think deflation has been mentioned at all. Reduced or even no inflation does not automatically translate to deflation.

 

[Rich One]

There's no inflation in Ecuador?

Ecuador is in a bind; can't devalue the dollar currency to make their products more competitive, and with lower oil prices has a serious crisis

 

[sesamosinsal]

I don't think deflation has been mentioned at all. Reduced or even no inflation does not automatically translate to deflation.

But no inflation is either 0 percent or less than 0 percent (deflation), and decreased demand and decreased monetary velocity create a deflationary environment. We recognize, however, that there is indeed inflation in Ecuador, and thus this would also indicate that the circulation of USD in Ecuador has increased to support this. Consequently, having the dollar doesn't always equate to a deflationary or zero inflation environment if the mechanics are right, and in theory Ecuador could flood the country with cheap dollars and rapidly increase inflation if it so desired.

The point here is that Ecuador has "printed the dollar". It just sells more oil. Obviously, the drop in oil prices is a big issue for them at this point, but oil is the main reason they adopted the US dollar as the currency. Oil isn't just Ecuador's true "foreign exchange reserves," but it also serves as a guarantee for loans from China and Russia.

If you're Argentina, adopting the dollar based on the country's exports of rather unpredictable soybean crops would be rather risky, and clearly Argentina doesn't have oil reserves like Ecuador. So, it's a bad idea to suggest that dollarization is the solution to Argentina's inflation issues. Not even Cavallo went 100% in with dollarization (by maintaining a convertible peso).

 

[sesamosinsal]

Ecuador is in a bind; can't devalue the dollar currency to make their products more competitive, and with lower oil prices has a serious crisis

They levy taxes on imports and foreign purchases made with credit cards. This is comparable to a devaluation.

 

[camberiu]

In principle, they did that... Didn't end pretty.

They PEGGED their currency to the dollar, which is different.
Countries like Argentina don't adopt the dollar because it simply prevents them from printing.
What Argentina did was that they CLAIMED that for every peso in circulation, there was an equivalent dollar stored in the central bank, and any Argentine could exchange their pesos for dollars at request. But the reality is that the claim was simply not true, specially as the government printed more and more pesos to cover their expenses. And once the market realized that, the whole thing imploded.

 

[el_expatriado]

Right! And how does, then, the State self finance? Borrowing usd to the IMF?

Why doesn't the state try living within its means? You know... import less than they export and spend less than they take in from tax collection. Nestor Kirchner did it (on both fronts) during his first administration 2003-2007 and we had 7-9% GDP growth during all 4 years. Not a bad result at all.

Saludos.