This title is very misleading. Actually Argentina voted in a presidential primary, and one candidate who advocates dollarisation got 31.57% of the vote. But the feasibility of dollarisation is not at all clear: https://www.economist.com/the-americas/2023/06/22/annual-inf...
I find it interesting that countries give up on their own currently, with all the power it brings, to use an external currency.
I guess the dollar is the best option as it’s easier to adopt than gold or whatever. Perhaps the euro, but I guess the dollar is more widely used. And the dollar is less manipulated than the Yuan.
I guess the efficiency of not having to run a mint and the giving up on local corruptions and manipulations is a worse harm than being helpless against dollar inflation or whatever.
> I find it interesting that countries give up on their own currently, with all the power it brings, to use an external currency.
I think the financial reality of many economies limits the usefulness of what you can do with currencies. Just because you have your own currency does not mean you can maintain it without a peg and that peg comes with a cost. And then there is the political will. The British Pound for instance should have allowed the UK to fare much better than the Euro-Zone during the energy crisis, but it really did not.
The people simply decide not to use the local currency. And people generally care far more about stability, ease of movement and reasonably stable inflation over some control which they never experience directly.
And since this ends up being a parallel grey market that is outside the taxation and financial control systems it's better not to fight.
Argentina has been having trouble with its currency for a while now.
Also, I question how much power it really gives in this case. Usage of USD is already large, and the government can't really control foreign exchange already.
In the 90's both Brazil and Argentina pegged their currencies to the Dollar in some way to control inflation. In Argentina the peg was an 1 to 1 conversion. In Brazil, the Central Bank would define a band in which the Dollar would float and the band would be periodically changed like the interest rates.
But the main difference was that in Brazil it was just a Government policy that could be removed in a whim, while in Argentina it was a law, enshrined by Congress vote. When the Mexican crisis hit in 1994, it was clear that such measure had limited effect and would become poisonous to the nation's economy. But the Argentinian middle class went balls-deep into the illusion of a cheap dollar (unlike their Brazilian counterpart) and any depegging suggestion was political suicide.
Brazil eventually depegged (later than they should, also for political reasons, but it was an obvious decision). Argentina depegged too, but only after the whole nation imploded.
Nostalgia for that illusion is one of the things fueling this vote.
Brazil depegged quite quickly given the economical environment. I lived in Brazil at the time, in 1994 the Real was introduced as another set of monetary measures to control hyperinflation and from what I remember even gained value against the dollar, then up to 1998 it was tightly controlled by the Bacen and in 1999 it was already a floating rate.
It might not have been the absolute best approach in hindsight (or even at the time, I don't recall the discussions, I was also in my teens) but at least the Real did end up controling the spiraling hyperinflation of the late 80s-early 90s.
My memories from that time are pretty bleak, grocers would have people working the whole day at stores remarking prices on the shelves (once in the morning, once in the afternoon and sometimes in the evening), my family would go all together on payday to grocery stores and fill up carts and carts with everything we needed for the month because money would be less valuable in a few hours... It was quite fucked up.
Real never really gained value this way, the government defined the value of the bands. It floated up and down inside the bands, but the government was acting behind the scenes to keep the bands (essentialy a peg), mostly burning reserves, selling companies and cutting programs. It helped controlling inflation and was a good approach even in hindsight, the duration of the measure is the problem. In 1997 it was clear to everyone that the peg was not sustainable and should be removed, but the government postergated until past the (re)-elections. But that's Brazil, and then there's Argentina...
After decades of uncontrollable inflation, I can see how relying on a foreign currency (one that is backed by the economically most powerful country) is attractive to the wider population looking for some sense of stability.
But, without the ability to control the value of their own currency, how would it work for the government to manage their domestic affairs?
Would they buy a boat load of USD, and circulate it within the country to be traded for goods and services?
Are there any downsides to this?
>But, without the ability to control the value of their own currency, how would it work for the government to manage their domestic affairs?
The idea is that the stability the economy gains by using the US dollar, and the inability of the Argentine government to cause inflation by putting the currency printer on overdrive, benefit the country more than the loss of self-control from no longer having its own currency.
In Latin America, Panama, El Salvador, and Ecuador formally use the US dollar as their own currencies: They have also decided that the stability of the dollar (and ease of transactions with the US and Americans) is more important than controlling its own monetary policy. While Argentina has never before formally adopted the US dollar as its currency, a) the dollar has been the informal currency for many domestic transactions, as in many other countries in South America and elsewhere; bank loans and real estate are common examples. b) Argentina linked its currency to the US dollar on a 1:1 basis from 1992 to 2001. I suppose the electorate has decided that the country should not have abandoned the peg.
Interesting. Other than the lack of control(which in some cases may be argued as a good thing), are there any downsides to adopting the USD as national currency?
If (a big if) one accepts said lack of control as a given then, no, for a historically chronically mismanaged country like Argentina, there are no downsides.
The situation is different for every country. The Eurozone includes many Western European countries with historically better records of monetary and fiscal discipline than Argentina, that have nonetheless decided that the benefits of using the same currency as its neighbors outweigh the loss of self-control. History will decide whether this view is correct; there certainly is no shortage of economists that argue that the likes of France or Netherlands having the same interest rate as Greece or Spain is a foolish idea. The UK never was a member of the Eurozone before Brexit, and no Scandinavian EU member is, either, all actively or passively remaining outside (not including non-EU member Norway). Conversely, the Bank of Canada has several times studied Canada adopting the US dollar.
The currency a country uses and the interest it pays are two different things. You could also imagine a group of countries with separate currencies agreeing to take on debt at the same interest rate, with differences in perceived risk resulting in corresponding exchange rate drift.
The downside is that you lose seigniorage (basically the "tax" the government gains from printing coin), so now the country gives that to the US and can only take money from debt and taxes
This is, of course, a different way to name the "lack of control" you mention
several European countries (e.g. Kosovo) use the Euro as their currency despite not being part of neither the EU nor the Eurozone for exactly the same reason.
Most of those are tiny city states (e.g. Vatican, Monaco, San Marino) that would not even have the capacity to offer their own currency. So not exactly the same reason. Kosovo is also pretty tiny, with a total population roughly equivalent to Warsaw. Argentinia has like 45 million people and a GDP that is an order of magnitude bigger than all these side channel Euro countries together. It is far from obvious weather they could actually pull this off on such a scale without official endorsement and full support from the US, which in turn is highly unlikely.
No one would trust a peg set by the Argentinian government. They have zero credibility because the next administration would likely just remove the peg and devalue the currency in response to yet another manufactured crisis.
Sorry for the title. USD "could" become the new currency (not "will"). I got carried on by the excitement. We have been suffering the ARG peso for too long.
I must say that the probability of Milei wining the elections are very high and most people agree that it would be surprising if he does not win the election after seeing the numbers he got in the PASO elections.
First, the title is very misleading. A candidate which proposes dollarization has won, unexpectedly, the primary elections (not even the main elections yet). He will have to win again in October and the numbers are very close between the 3 main parties, however it is for sure a possibility that he (Milei) wins.
Even if he wins, he doesn't have a lot of support from the senate or congress to pass laws since he's a more "independent" candidate separate from the two main parties, he also has no governors on his side. So, it will be very difficult for him to actually accomplish anything, let alone something so significant.
Even if he can, I believe he actually said it's a 35-year plan to sort of bring Argentina back into tracks, so he might not even actually dollarize.
Now, on a more general note, his win was very unexpected, he was sort of regarded as a joke not too long ago but apparently amassed a good number of followers, some of which are libertarian but most I believe are just fed up with inflation and insecurity.
Personally, I believe he is really not fit for presidency, moreover, he claims to be "libertarian" however he's very conservative on social issues, already claimed he's going to hold a plebiscite to prohibit abortions, he's against sex education in schools because he claims it's "perverse", he's a climate change denier and his vice-president is a denier of the 70s Argentinian dictatorship as well. I believe him to be a potentially dangerous candidate were him to reach power. I know many people in HN will disagree because most Argentinians in this website sympathize with him.
