The most voted in Argentina’s primary elections on Sunday (13), the libertarian presidential candidate, Javier Milei, has as his main flags in the economic area the dollarization of the neighboring country’s economy and the end of the Central Bank.
In an interview with the newspaper the country during the pre-campaign, Milei justified that, in order to curb inflation, it is necessary to “take money printing machines away from politicians” and that Argentina was “the richest country in the world when it did not have a Central Bank”.
“From 1880 to 1935, average inflation was 0.9% per year. In 1935, the Central Bank was created as a way to deceive people and save friends from power: inflation jumps to 6% per year on average. Later, in 1946, Argentina nationalized it and until 1991 the average inflation was 250% per year. We took 13 zeros off the coin, we had two hyperinflations without war. A total disaster”, claimed the libertarian candidate.
“In 1991 convertibility was adopted, which was a fixed exchange rate system, but fixed by law, which had more credibility. As of 1993, Argentina was the country with the lowest inflation in the world. It was the most successful program in Argentine history,” added Milei, who argued that in Ecuador, which did away with the local currency, the sucre, and adopted the dollar at the turn of the millennium, “income was multiplied by ten and inflation was pulverized”.
In his book “The End of Inflation: Eliminate the Central Bank, End the Inflation Tax Coup and Return to Being a Serious Country”, Milei, who is an economist, stated that the “purist” dollarization process in Argentina would be carried out in two and a half years.
A first step would be the transformation of the banking system into the so-called “Simons bank”, a model based on the ideas of economist Henry Calvert Simons, who proposed a banking system with 100% reserves — that is, banks could not grant loans based on deposits. of account holders.
The second stage would be a “currency competition” and, after Argentines chose between pesos and dollars, the Central Bank would be eliminated.
In an interview with the newspaper clarioneconomist Emilio Ocampo, one of Milei’s references, defended that the peso and the dollar “coexist for a while”, but that they would not compete “because the peso can never compete with the dollar”, and explained how the process can take place of dollarization.
“Base money is frozen on day one. A market clearing exchange rate is fixed and for a time, which is impossible to determine today, the two currencies coexist. This is what happened in El Salvador, for example. In Ecuador, on the contrary, a date was fixed until which the sucre could circulate and then the dollar began. The entire process is done through the banking system. The Central Bank works with the Federal Reserve,” said Ocampo.
He warned, however, that in practice it would not be an easy process. “The Argentine economy is already dollarized, Argentines have five times more dollar bills than pesos. The practical implementation is not easy, the debts are dollarized, for example, you have to see the Central Bank’s debt, for example ”, he justified.
Quoted for head of government says process will be “voluntary”
This Monday (14), in declarations to the website All Newsthe name indicated by Milei to head the Government if elected in October, Ramiro Marra, said that the dollarization process will be “voluntary” and that the changes will not occur from the “first day” of the new administration.
“Let each one hand over their pesos whenever they feel like it,” he said. “If there is someone who loves the weight because they have a mental problem or because they are a little crazy, they can continue to use it as long as they want. At a certain moment, [o comércio] will receive them no more.”
In an interview with People’s GazetteRodolfo Coelho Prates, professor of economics at the Pontifical Catholic University of Paraná (PUCPR), commented that Milei’s dollarization proposal is similar, in practice, to the convertibility of the Menem government in the 1990s.
“At the time of Minister Domingo Cavallo, this full conversion of the peso was adopted: to keep the value of the currency in balance, if a dollar was withdrawn from the economy, a peso was also withdrawn. This got to the point where the provinces printed their own currency because there wasn’t enough currency to make the economy flow normally, the real side of the economy, we’re not just talking about the financial side,” argued Prates.
“So, Milei’s proposal could aggravate the situation, because the economy is in trouble, in crisis. If you dollarize the economy, any instrument of monetary policy is lost”, claimed the professor.
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