Javier Milei: Argentina’s Last Chance

Several countries have decided to stop using their own currency and instead adopt the US dollar as the standard for exchanges. For some poorly managed economies plagued by corruption, abandoning the national currency is often a last resort before total collapse. Westerners often fail to realize the endless complications and hardships caused by a currency caught in an unending spiral of depreciation. We, in the West, do not appreciate the luxury provided by a stable currency that allows for long-term pricing stability of goods and services.

Just take a walk today in Buenos Aires through supermarkets or electronic stores, and you’ll notice that no prices are displayed because they can change several times a day. The suffering inflicted on populations in terms of macroeconomic uncertainties and the unbearable waste of time counting bundles of banknotes for minutes to pay for purchases strongly argue for the adoption of the dollar (or perhaps the euro) by certain nations, putting a definitive end to the widespread and irreversible infection.

This is precisely what was undertaken around the 2000s in Ecuador and El Salvador, which greatly benefited from abandoning their respective currencies in favor of the greenback. Once among the poorest countries in Latin America, they experienced a spectacular turnaround, reducing inflation rates from 15% for El Salvador and 50% for Ecuador to around 3% in just a few years. Adopting a stable currency has a deterrent effect on inflation because all products and services are expressed in a stable medium of exchange, restoring peace of mind to consumers who no longer have to worry about disposing of their money before a new price surge and can restart long-term projects. The example of Panama, officially dollarized, is revealing, where fixed-rate and 30-year credits are common, while in countries experiencing hyperinflation, borrowing is only possible for 1 or 2 years at variable rates.

After relegating their currency to the status of relics, El Salvador’s growth rate turned out to be 30% above the regional average, while Ecuador allowed its economy to grow by about 7% annually. Twenty years later, their unemployment rates are below 4%, while Argentina officially reports a rate of 12%. The disappearance of the devaluation risk in countries that have opted for the dollar allows importers and exporters to trade securely, revitalizing their economy. The disastrous management of the state is much less harmful because businesses and individuals can continue their affairs, even in the event of their country’s default. In these conditions, why has Argentina kept the Peso until now, subjecting its population to severe inflation (almost 150% in 2023), if not to perpetuate the power of a tiny elite and, incidentally, to consolidate the endemic corruption that has eaten the country to the bone?

So, it is on a clear mandate that Javier Milei was elected in Argentina, pledging to both abandon the Peso and dismantle the country’s central bank, which will practically have no room for any monetary policy and will be entirely directed from Washington (by the Federal Reserve). Removed from the organizational charts or largely stripped of its powers, the central bank will no longer be able to create money to bail out deficits and buy public debt, used by the executive to cover the country’s operating expenses while hiding its own incompetence. Incidentally, the Argentine inflation rate will be drastically revised downward as it aligns with the US inflation rate.

One does not need to be a libertarian or anarcho-populist like Milei to understand the substantial benefits of dollarization in certain countries, such as Argentina or even Lebanon, ensuring a return to prosperity, a massive reduction of financial risks, and a strengthening of the banking system.