Dollarization for Argentina? (Scott Sumner, 11/20/23. Econlib)
- Dollarization would solve the problem of hyperinflation.
- If Argentina intends to dollarize, now would be a good time to do so.
- Dollarization is not a panacea. Argentina still needs Chilean-style economic reforms, and there’s no guarantee that dollarization would lead to those reforms.
- Dollarization is less risky than a currency board, but not completely free of risk.
There are two reasons why this is an ideal time for dollarization. First, years of hyperinflation have produced a very small monetary base (in real terms, obviously.) Many Argentine citizens have already switched their money holdings from pesos to dollars. Thus the fiscal cost of dollarization would be relatively low. Given Argentina’s severe economic problems, it would still be a heavy lift, but it’s doable if they are determined to make the switch. Fiscal reforms would obviously make the job much easier, and Milei has promised to slash the budget. I certainly don’t think he’ll cut anywhere near as much as promised, but some cuts seem likely.