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Why can not dollarize in Argentina

Before analyzing the feasibility of Argentinian dollarization, it must be stressed that for those who are nostalgic for the convertibility that was applied here in the 1990s, dollarisation is something very different from it. It is not the same to have a national currency with a fixed and unchanging exchange rate that also has to comply with the monetary rule to equalize the monetary base with the reserve that directly uses the foreign currency sign of another country. Let's see we go point by point:

a) Dollarization is unconstitutional and therefore illegal. Article 75 (6) of our Constitution states that there must be a federal bank with the power to issue a currency. This is the national currency, the central bank and the only national currency issuer.

b) Dollarization is not just such a measure, but it can only be taken one day because it has risen with a change of thought. To make a dollar, all money deposited in banks and in circulation in people has to be exchanged for the dollars of the BCRA reserve. A must be free availability, otherwise the exchange would be impossible. Of the 66,000 million reserves of the BCRA, it would therefore be necessary to deduct argentolar reserves close to 17,000 million US dollars and 19,000 million US dollar currency swaps that are not free availability reserves. It would be $ 30 billion, which would have to be deducted from other assets that do not represent freely available reserves, and very likely the IMF money that was provided to pay the debt rather than the dollarization. But suppose magic can use $ 30 billion. The amount of deposits in the pesos and in circulation in public exceeds 100 billion USD, so it would be necessary to dollarize more than 300% of the devaluation. You need a dollar of about $ 150 per dollar. It is worth mentioning that the required dollarisation reserve rate is much higher than that required for convertibility, since dollarisation is not enough to change the currency base for reserves because if depositors want to withdraw their deposits, banks must be able to deliver them to depositors 100% of their assets in dollars, so it is necessary to transfer 100% of the deposits and the currency to the public currency.

c) If the likelihood of default does not seem to be low today, or what we would then say about dollarization: BCRA would run out of reserves and the Treasury would rely only on operating expenses but on interest and even on debt capital if the markets decide to recover. For this reason, there are several reasons for the scattering of dollarisation for tax reasons: it falls into the risk of default, retirement and wages in the public sector if the collection is not a possible recession or any other factor, and the market does not finance this deficiency. The problems do not end here: you do not have to have a floating debt like the one we have today because you risk that you will get into unmanageable situations, and the starting point would be the ubiquitous spirit. The country's risk would be stratospheric in the Argentine dollarisation.

(d) The country's external accounts, irrespective of whether it is a trade balance or a capital account, would be exposed by the financial sector at a time of illiquidity in the event of a trade deficit or foreign capital deficit for which there would be no possibility of temporary financing from any monetary authority. In that case, the dollar would leave the financial system abroad, so many banks will be in a very vulnerable situation. Banks would be the first to fall into a real meat mill, which would mean dollarisation in our country.

(e) From the point of view of the level of activity, the Argentine economy would have retained a relative price situation that the United States Federal Reserve, raising or lowering interest rates, would have imposed on this economy for reasons unrelated to the Argentine economy. If the dollar in the world is rising sharply or sharply, the Argentine economy would be exposed to sudden recessions or expansion without being able to adapt it to interest or instruments that increase or reduce liquidity.

f) In terms of profitability of the banking sector, dollarisation would necessitate very high reserves, as it would be necessary to prevent the bank from leaving the dollar without cash to participate in the deposit selection process. The decline from a single bank would quickly become a system management because the public would know perfectly well that BCRA has no help at any bank. But that would be Hamlet's own dilemma, given that with the high reserves of dollars in Argentina the bank would tend to move abroad.

g) argentinian debt with the IMF would become eternal. We could never pay and thank the fund because we would have to get a surplus of $ 57,000 million plus interest in canceling a loan or otherwise finding other funding that would be impossible to get if we consider that most likely nobody I would be willing to lend new money a country that does not have a fiscal policy or monetary policy and has a high probability of default.

And there are many, many problems more than brevity that we can not name here. In short, few but noisy liberals, after being frustrated by the fact that they were unable to eliminate the central bank or go into several private coin issuances, are near dollarisation to organize the pictogram. They are likely to be frustrated again. It is not strange that with the eccentricity and extremism that these economists characterize, there is no further retrograde idea of ​​this virulently anti-inflationary anarcho-capitalist current, which leads Argentinian liberalism to dangerous sterility, nothing more than nothing barter


Walter Graziano and co-workers

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