OPINION | Milei is a by-product of the Argentine crisis, Jorge Dávila's analysis 1:27

(CNN Español) -- As the loss of the value of the Argentine peso deepens, debates abound about how to stop it and, consequently, create the conditions to control inflation.

This is not the first time that the country has gone through a period of high inflation. But the current percentages are the highest they have been in the last three decades, when Argentina was facing hyperinflation that led to the convertibility program that equalized the value of the peso with that of the dollar. Among the scenarios that could arise, the presidential candidate for La Libertad Avanza, Javier Milei, proposes a program of dollarization of the Argentine economy.

Milei argues that this is the only way to end inflation and generate a shock that leads to a revaluation of production and wages in dollars. Imagine a conversion closer to the price of the blue dollar today (880 pesos for every dollar exchanged).

Several economists consulted believe that the conversion proposed by Milei is not feasible. They argue that if the exchange of dollars for pesos were not made at a value close to that of the current market and ends up being calculated, as most fear, from the division between the monetary base and the dollars available in the Central Bank's reserves, the result would be much greater.

But what would a dollarization process look like?

Specialists agree that in order to carry out this program there is not much mystery: it is necessary to rescue the total of the pesos that circulate in the economy and deliver dollars in exchange for all operations. The question is how to do it and what kind of change would result from that conversion.


"Dollarization as a concept is very attractive, but its implementation is very difficult," says economist Claudio Loser. "It's not just about converting banknotes in circulation, but also loans and deposits. It's not so automatic, there has to be a support system to bring about that change," she adds.

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For Damián Di Pace, an economist and consumer specialist, "even the leaders of the Milei space recognize that dollarization cannot be done during the first year of government, because you don't have enough dollars. But it is important to make a path, because we have not had a currency for many years, and that does not give predictability to investment, savings or consumption of Argentines."

If this currency exchange program materializes, and taking into account how it is implemented, the impact on the economy could be dissimilar, if different indicators such as inflation, consumption, poverty, etc., are considered.

Some specialists explain that Argentina's hitherto indomitable inflation would find a more reasonable channel if the economy were dollarized, while others warn of possible pernicious effects in the short term. Among others, that the Central Bank will lose its ability to influence monetary policy, because it will no longer have the capacity to issue currency and would disappear as a lender of last resort.

"It's not any kind of solution for anybody. People think it's coming back one-on-one, but it's not going to be like that. In the long run, dollarization can lower inflation, but it has many consequences, because I don't see it as possible," says economist Mariano Gorodisch.

"There is no guarantee that dollarization will automatically generate economic stability," agrees Loser. "In my opinion, it is a very difficult process, where you lose your monetary policy and you need strict fiscal discipline. Without that, it's impossible to dollarize."

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Another of the immediate effects that the implementation of a dollarized economy would have would be the inability of the Central Bank to counteract bank runs. Analysts agree that since it cannot issue dollars, if the dollars it already has were not enough, it would be necessary to resort to new loans, generating a process of indebtedness that is difficult to stop.

Beyond the controversies, it is necessary to clarify that La Libertad Avanza has been the only space that has spoken out in favor of dollarization, so, so far, the project would only be activated in the event of an eventual victory of Javier Milei in the presidential runoff.

This article was published on August 16 and has been updated

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