- Argentina’s presidential frontrunner says he wants to replace the peso with the US dollar.
- Javier Milei said that this could help tame inflation in the country, which hit 109% in May.
- If Argentina adopts the greenback, it would become the biggest economy to dollarize.
While some emerging economies have demonstrated an eagerness to untangle themselves from the US dollar’s dominance, Argentina may go in a radically different direction.
The frontrunner in Argentina’s presidential election has proposed replacing the peso with the dollar.
Javier Milei, an economist and libertarian congressman, is vying to win the presidency in October and has pitched adopting the dollar as a solution to sky-high inflation, which hit 109% in May.
“The peso melts like ice in the Sahara Desert,” Milei is known to say, according to Bloomberg.
Over the past year, the peso has lost half its value against the dollar, which makes imports more expensive. Meanwhile, benchmark interest rates sit at 97%.
Adopting the dollar as the national currency would mark a radical departure from Argentina’s and other countries’ efforts toward dedollarization, which has largely focused on using other currencies for international trade and reserves.
In April, Argentina said it would start buying the bulk of its Chinese imports in yuan instead of dollars. And in January, Brazil and Argentina said they were preparing to launch a joint currency.
Despite those efforts, Argentine consumers are already using US dollars in day-to-day transactions and as a form of savings.
“Argentina is already dollarized, de facto dollarized. So Argentines have already chosen to use the dollar to save money and to save themselves against the inflationary tax,” Emilio Ocampo, a former Wall Street investment banker who originated the dollarization idea that Milei proposed, told Bloomberg.
He said that the country’s other attempts to control inflation had failed. The austral momentarily replaced the peso in the mid-1980s, and the peso was pegged to the dollar in the 1990s for several years.
But hyperinflation, debt crises, and currency crises persisted as government spending resulted in chronic fiscal deficits.
Other countries, such as Ecuador, already use the US dollar as their national currency, some of which adopted it in the wake of economic crises. If Argentina follows suit, it would be the largest economy to dollarize.
Bloomberg reported that recent polls showed that 60% of Argentines opposed adopting the dollar. Economists said that they opposed Milei’s plan because it would give the US Federal Reserve too much monetary power.
Using the dollar could also threaten Argentina’s balance of payments if its imports jump and exports tank. And even if Milei wins the election, his congressional coalition may not win enough seats to enact his dollarization plan.
But Ocampo told Bloomberg that Argentina’s decision to dollarize would be “because it basically has no other option.”
“And it’s in a scenario where the only way to stabilize prices would be with dollarization,” he said.
