The brain behind the dollarization applied in The Savior considered that President Javier Milei should immediately implement the monetary system, which was his main campaign promise that took him to the Casa Rosada.
Manuel Hindsthe former Minister of Finance of the Central American country, assured that dollarizing would cause multiple benefits for Argentines.
Hinds He joined other economists such as Steve Hankealso from Johns Hopkins University, who questioned Milei for not accelerating dollarization, as he had promised in the electoral campaign, like the columnist Maria Anastasia O’Grady of the Wall Street Journal.
Instead, Other experts from various ideological schools consider that the best way to lower inflation is with a fiscal surplus and an independent Central Bank, without the need to re-fix the exchange rate.
“Argentines prefer to keep their wealth in dollars than in pesos and, given the bad experience they had in getting hold of their dollars if they keep them in Argentina, they prefer to send them abroad and, preferably, in secret”expressed Hinds.
For this reason, the former Minister of Finance of The Savior said Milei Dollarization should not be delayed any longer since, among other benefits, it will crucially reduce the interest rate paid by companies and individuals.
In a paper called “Would dollars escape from a dollarized Argentina?”this economic consultant and member of the Institute of Applied Economics at Johns Hopkins Universitydefended his country’s experience and considered that the Argentine government should imitate it without delay.
In the report, he highlighted that “Many Argentine economists seem to believe, or say they believe, that if the country becomes dollarized, the people will leave the banks empty because they will take their dollars abroad, as they have traditionally done and continue to do to this day.”
“The data shows that, as theory expects, capital will stay where it receives the highest returns once the risks of operations are discounted”highlighted this expert who worked with the World Bank.
“People know that if the Government manages the currency, it will transfer the costs of its fiscal and monetary deficits to depositors, holders of assets in pesos, retirees and employees with salaries in pesos. This is what the Milei Government is doing today “Hinds said.
For this reason, he maintained that “The Argentine people are becoming poorer at a rate and to a degree never seen in the country. People then take their resources. To do so, they withdraw pesos from banks, buy dollars and send them abroad.”
“The Central Bank issues more pesos to replace those that are withdrawn, which increases the inflation rate and further devalues the peso, increasing the demand to exchange pesos for dollars. This is the classic vicious circle of inflation produced by a accommodative central bank”he explained.
And I add: “This vicious circle produces a mirage that is explainable to people not specialized in economics but inexcusable to economists, who think that people trust more in pesos (which retain their volume because the central bank issues them) than in dollars (which have a supply limited)”.
But distrust “is demonstrated by comparing the interest rates of dollars and pesos in the same country, where all the risks, except those associated with the currency, are the same“he detailed Hinds.
“People who deposit resources in Argentina run the same risks, except for the loss of value of the deposited currency. In 2023, on average, loans could be obtained in dollars at 7.86% annually, but in pesos at 87, 68% do not cover the risk, and people take the money”he detailed.
“As has been seen in the experience of all dollarized countries, this problem is automatically solved by dollarizing the economy and at meager interest rates”he emphasized.
Of course, he clarified Hinds, “You can always stabilize the economy through the sheer force of will of the Central Bank not to issue money unless it buys foreign currency for pesos. Argentina has not shown the propensity to exercise such force of will.”
