Ahead of Argentina’s presidential election, frontrunner Javier Milei has caused the peso to plummet against the US dollar by calling for the country to adopt the dollar as its official currency.
Milei’s proposal has met with mixed reactions, with business leaders largely opposed to full dollarization. They argue that it would cede monetary control to the US Federal Reserve and undermine Argentina’s exchange rate competitiveness.
Instead, most businesses prefer to keep the peso and maintain monetary autonomy. This is reflected in a recent survey where 80% of respondents favored a presidency by Patricia Bullrich, Milei’s leading opponent, who has proposed a more limited form of dollarization.
The debate over dollarization comes amid widespread economic turmoil in Argentina, with inflation at 134% and interest rates at 118%. In response, some firms have begun to partially pay salaries in US dollars.
Analysis
Milei’s proposal for full dollarization is a radical one, and it is unlikely to be implemented in the near future. However, the fact that it is even being considered is a sign of the desperation of many Argentines, who are grappling with a severe economic crisis.
The business community’s opposition to full dollarization is understandable. Giving up control of the monetary system to the US Federal Reserve would be a major risk, and it could make it more difficult for Argentina to manage its economy effectively. (See Greece entry)
However, it is important to note that there are also potential benefits to dollarization. It could help to reduce inflation and stabilize the economy. It could also make it easier for Argentine businesses to compete in international markets.
Ultimately, the decision of whether or not to dollarize is a complex one. There are both risks and potential benefits to consider. The Argentine people will have to weigh the options carefully before making a decision.
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