Recently, Milei insisted again in various public statements with his idea of dollarization. He argued that it was "getting closer and closer," although it ruled out its implementation for this year for time reasons.

Without the slightest tap, he also said that "the chainsaw and the blender, which are the pillars of the adjustment, do not negotiate." Some economists alert precisely that with inflation liquefaction it would be preparing the land for dollarization. Because, in addition to facilitating the spray of social spending, wages and other income, it contributes to liquefy the monetary base in general, as well as the remunerated liabilities of the BCRA (currently almost all “passive passes” and very little of Leliq), which are one of the main pitfalls for that plan.

Dollarization was one of Milei's main campaign slogans, with which he appealed to the illusion of many people to be able to collect in "hard currency", given the constant loss of purchasing power of weight by galloping inflation; measure that was accompanied by the crazy proposal to eliminate the Central Bank. With his assumption, both ideas seemed to have been quick frizzed; In fact, he did not even mention them in his inaugural speech. But after the defeat of the Omnibus Law in Congress, in a framework of massive rejection in the streets - with the cacerolazos, unemployment and working and popular mobilization - it has tried to resume the political initiative again putting the issue on the table.

Milei part of the erroneous premise that inflation is due exclusively, at any time and place, to excess monetary issuance to finance the fiscal deficit. With her, she tries to justify the need for dollarization, by removing the Central Bank (BCRA) the power to issue.

Viability and consequences of dollarize

In the first place, with or without elimination of the BCRA, this measure means renouncing the economic sovereignty of issuing the national currency, regulating the interest rate and setting the exchange rate, among other basic issues of a central bank. It is impossible to think of a national development policy for the benefit of the popular sectors renouncing these basic instruments in advance, along with other losses decades ago that should recover, such as the nationalization of deposits and the orientation of the credit in favor of national production , use and popular consumption. It is clear that this central bank does not serve the people, but with the excuse of fighting inflation, which actually feeds with its disastrous economic policy, Milei seeks to deliver the monetary sovereignty of our country.

Secondly, the dollarization would deepen the extreme of our US dependence, since the terms of said scheme should naturally be negotiated with the broadcasting country of that currency. From there in more, the Argentine economy will be subject to the cycles of monetary and exchange policy of Yankee imperialism (in particular, to the appreciation or depreciation of its currency globally).

Another not less issue is related to the economic feasibility of its implementation, as well as immediate implications for real salary and other popular income. What exchange rate would dollarization be made, that is, the exchange of the pesos of the economy for dollars, and even more, with what dollars? Because, as is known, the BCRA suffers a long time ago of a pressing shortage of reservations. In this regard, Milei said: “We have accumulated about USD 7,000 million reserves and the monetary base is USD 7,000, 8,000 million. I mean, we are nothing (to dollarize). ” However, confuse or misrepresent the numbers. It is true that the BCRA has managed to buy that amount so far in its management, but with an accumulation of (own) net reserves (own) (3.6 billion). And this does not mean that net reserves continue to be negative at about 7.5 billion dollars (which means that the BCRA has used dollars borrowed, including a SWAP section with China). On the other hand, at the official exchange rate, the monetary base is currently equivalent to USD 12.8 billion, significantly higher than Milei.

This accumulation of reserves has been carried out at the expense of the mega devaluation and the deliberately caused recession, which contracts internal demand and imports of the dependent local economy. Incidentally, Milei shared in X (former twist) a journalistic note entitled "For the monetary squeeze, inflation and recession, savers sell dollars to reach the end of the month." Not only pushes poverty millions of Argentines with their economic policy, but celebrate it through networks.

As part of this recessive plan, the goal of accumulation of reservations until December 2023 agreed with the IMF implies ending the year with null net reserves. That is, without still having a single dollar to be able to carry out the rescue of the monetary base; And not to mention the remunerated liabilities of the BCRA (which support the bulk of the deposits in pesos), which are equivalent to USD 35,000 million. To try to answer this issue of the lack of dollars, indicated by most economists of various political orientations, Milei and their related economists appeal to very little consistent and much less realistic financial gadgets.

Therefore, the BCRA is still far from having the dollars necessary to carry out the rescue of the economy's weights to an exchange rate that is not astronomical. Naturally, to accelerate the liquefaction of the weights of the economy, the government could resort to a new devaluation jump, which will further spray salaries, retirements and other income, as well as health, education, etc. spending, which already had A monumental cut in real terms in the brief management time of Milei.

The following issue around dollarization lies in the very functioning of the scheme. As happened in the ‘90s under convertibility, the expansion of the monetary base (already in dollars) would be subject to having surpluses in external accounts; In particular, in the current account of the balance of payments, which is chronically deficient due to the deformed development and dependent on the Argentine economy; And it will be even more with the policies to which Milei points out, of unrestricted commercial and financial opening, and freely for the foreignization of the economy. This leaves the door open to the need for constant external indebtedness (anyway, banned for the moment for Argentina); or to a chronic recession, with high unemployment, given the sustained lack of liquidity of the economy that would generate the external deficit. In such a context, they would end up proliferating the quasi provincial currencies to finance public spending and pay salaries, as happened towards the end of convertibility.

In addition to this, the lack of a last instance lender (because the BCRA, beyond continuing to exist, no longer emits the legal tender) would favor the instability of the financial system as a whole.

Faced with adverse or disruptive, external or internal events (global crisis, drought, etc.), the BCRA would lack the ability to adjust the exchange rate or cover part of public spending with monetary emission. Without going any further, during an event like the pandemic, which generated a collapse of GDP and a strong drop in exports, the BCRA could not issue money to finance the government and thus sustain public spending until the external storm passes.

Worldwide, only Ecuador, El Salvador, Panama and a handful of islands have dollarized their economies.

Extreme dependency and sufferings of the people

Dollarization is an even more rigid scheme than the convertibility that he governed in Argentina during the ‘90s and principles of the following, which directly renounces to issue the national currency, instead of setting by law the parity with the dollar. The results of that experiment and those policies, which Milei seeks to take to the extreme, were already in sight at that time. How could it be otherwise, convertibility ended up implioing, in the midst of the worst economic and social crisis that Argentina suffered.

Consequently, far from being a panacea, the dollarization of the national economy would deepen to inconceivable extremes the economic and political dependence of our country, particularly with the US, causing the ruin of much of national production, especially The small and medium -sized company, and greatly aggravating the pressing economic and social situation that suffers wide popular sectors.

Ramiro Suárez writes

Today N ° 1999 02/21/2024