Now, the trick’s flaws don’t end there. It turns out that the Treasury places 11.7 trillion pesos in bills and bonds, but the monetary absorption that it allocates to the BCRA will be, as announced, 8.6 trillion. And the remaining 3.1 billion? Well, thank you, they are in good health.
What is certain is that by remaining in the market they generate the so-called “Money Multiplier Effect” that we will not explain because it is too technical, but let the reader sign that it is nothing other than pesos generating new pesos. At this point, we cannot rule out that officials will soon come out to state that even this “small change” of 3.1 billion will be neutralized by one means or another.
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Know what? It matters little and nothing. How little or nothing matters! Yes, it matters little and nothing. Because the rabbit the size of a kangaroo that the magician managed to get out of the galley came out dead. Yes, the magician brought out a dead rabbit. Let’s see why:
To unravel why all this ingenious financial mechanism only serves to make the State lose and the banks gain an extra $420,000 million in a third of the duration of a pregnancy, we must first explain the stormy romance that President Milei has been experiencing for years. years, not with any of his girlfriends, but with the monetary liabilities of the BCRA, which keep him from sleeping because they hinder him – according to him, because it is just a fable – an eventual dollarization.
What is needed to dollarize?
It happens that of the different ways of dollarizing, the President seems to have noticed the existence of only one, even though he gives examples from different countries. The point is that perhaps influenced too much by the sweet memory of the initial bonanza phase of convertibility, he identifies dollarization with the transformation of all the BCRA’s monetary liabilities into dollars. Today read, the monetary base and passive repos.
Before there were also the deceased Leliq, LEBAC, etc. So, It is not necessary to be too sagacious to warn – in fact Milei himself publicly confessed it days ago – that the idea is still to dollarize, and that in the problematic path of action that is the only one that Milei sees to achieve it, he has to transform the liabilities BCRA monetary amounts to dollars.
However, To be able to do this, either a lot of dollars is needed, or a drastic reduction in the monetary liabilities of the BCRA.. Hence the recent mega-bidding of bonds and bills that – let the reader have no doubts – was highly discussed and co-produced between implementers and implemented.
With this, the officials managed artificially lower the monetary liabilities of the BCRA at the cost of increasing the Treasury debt much more than it lowers the Central debt. But Milei believes that it works for him, because dollarization seems closer to him. Eventually, in this way, it could reduce the repos to zero and leave the monetary base as the sole liability in pesos of the BCRA, thus facilitating a “low cost” dollarization. What is “low cost” dollarization?
What is “low cost” dollarization?
A dollarization done with very few dollars. With chirolas. Until days ago, at a dollar of $1000, almost USD 50,000 million would have been needed to dollarize through the “Milei system.” Believe it or not, some USD 25,000 million more than when this government took office in December given that – in good romance – Luis Caputo, far from liquefying, “deliquefied”, “solidified” by lowering the financial dollar from more than $1,200 to $1,000 and generating new monetary liabilities of the BCRA through various means on all sides while with great fanfare the opposite was said.
That is to say, he did not liquefy as he had to liquefy, but he did it like an upstart electrician: putting the positive pole where the negative goes. He had to be liquefied against dollars, and in a true “chambonada” liquefied against goods and super-solidified, he ultra-revalued against dollars, which was just what NOT to do. Now, it’s late… And if it doesn’t seem late it’s only because this government took over with the economy so, so demonetized, that at the beginning, in the honeymoon stage, the system will bank on any nonsense. Even the many and very big ones that were and are being committed and that we do not have time to mention now.
Now, on the path to “low cost” dollarization, the president and the minister can advance further and further. Not only by completely ending the BCRA’s passive repos, putting them in the name of the Treasury in a masterpiece of cat-and-terrorism.
They can advance even further. We give you an idea; Why not change the debtor of the unpaid reserve requirements and place that entire sum in a Treasury bond at a zero rate? That is, withdrawing the current accounts of the banks as liabilities from the BCRA, which should constitute those same sums in unpaid Treasury bonds.
In this way, in addition to saving USD 35.5 billion to dollarize – which were the passes until days ago – another USD 4.5 billion would be saved, and with only USD 9.4 billion it would rescue all the currency and would have dollarized. They could even devise ways to go even further and even achieve dollarization with only USD 5,000 million by performing financial surgery on the currency.
Magic then? Can Milei dollarize without dollars and put an end forever to the simple nonsense of inflation, devaluation, and the Central Bank? Was he a genius and the rest of us are all morons? No. The rabbit he took out of the galley is giant, it’s true. But he is dead.
Far from being a pleasant magic trick, it is a masterpiece of horror. It happens that by dollarizing almost without dollars we fall into the old story of the “dance of the chairs.” That dance where when the music stops, the dancers have to desperately find an empty chair and sit down. Whoever is left without a chair loses, retires. A “low cost” dollarization would be equivalent to inviting the entire country to dance with the no more and no less than 74 billion pesos in deposits in pesos and in circulation in the public in pesos that there are (when Milei rose there were less than half of that. And in terms of dollars only a third of what there is today). And the chairs?
Well…the chairs, depending on how “low cost” dollarization is, would be about 14,000? 10,000? USD 7 billion that Caputo promised Milei, he never brought, and they look like General Alais’s tanks?
From there, it is very easy to deduce what would happen with a “Milei-style dollarization” combined with doing it at a bargain price. In a short time there would be an irresolvable bank run, because everyone would know that the dollars that there would actually be are very, very few in relation to the authentic tank of gasoline of flammable pesos that Milei and Caputo have been generating and generating in the form of deposits of the people – what really buys dollars and starts any bullfight – and in the form of currency in pesos. While Milei and Caputo entertain themselves by playing dominoes trying to match the pass tokens with the Treasury bill and bond tokens, they did not notice that the M3, the group that is the fuel of the exchange and banking runs, does not pass through that avenue. . Gentlemen: what buys dollars is not the passes… it is the deposits! And deposits in pesos in dollar terms almost tripled in just 5 short months…
That’s why The giant rabbit is dead. That’s why the magic trick that is fun for now can end up in a very short time. financial horror show. Therefore, if we continue along this path of vain, artificial and deficient financial pastimes that the president and the minister engage in like vacationers playing dominoes in Bristol, the “Nothing here, nothing there” leads to the gloomy and Heideggerian “nothingness, annihilated.”
Economist
