President-elect Javier Milei, a self-described “anarcho-capitalist,” has radical ideas to prop up the ailing economy, including the introduction of the US dollar. Will that work?
Source: Argentina: Can the US dollar save the economy?
Using the US currency as legal tender means that a fixed exchange rate determines the rate at which the existing currency is converted into dollars. The country’s own currency remains in circulation, but is usually no longer printed and gradually phased out.
According to Milei, Argentina’s economic malaise is the result of the wrong economic, fiscal and monetary policies. The president-elect and other proponents of dollarization are convinced that if you take control of the currency away from politicians (whom they call the elites and who are perceived as corrupt), the problems, notably inflation, will disappear.
While dollarization can have certain advantages, there’s also a downside. If politicians have no control over the currency, the scope for policies shrinks substantially.
In the absence of a local currency, the financial constraints on subsidies, social programs, the education sector or fulfilling election pledges become a growing impediment.
Equally, recessions and economic crises would become more painful than they already are if the state has no means to mitigate the greatest hardships.
It would also be impossible to gain a competitive advantage by devaluing one’s own currency, be it for domestic exporters or the tourism sector.
