Milei: We're going to dollarize the economy, we're going to shut down the Central Bank 0:41

"It's non-negotiable." This is the phrase that Javier Milei, Argentina's president-elect, has repeated over and over again about his initiative to close the Central Bank.

Even in the midst of back-and-forth with the appointments of some of the ministers of his future cabinet, this Friday, the Office of the President-elect published a statement in which, once again, it was insisted: "In the face of the false rumors spread, we wish to clarify that the closure of the Central Bank of the Argentine Republic (BCRA) is not a negotiable matter."

The economist argues that the closure of the agency is the counterpart of another of his workhorses: the dollarization of the Argentine economy. It would imply that the country would renounce the Argentine peso and use the U.S. dollar as its currency.

What is the Central Bank and why is Milei so categorically planning to close it?

The Central Bank of the Argentine Republic is, according to its Charter, an autarkic entity of the national State "whose purpose (is) to promote, to the extent of its powers and within the framework of the policies established by the national Government, monetary stability, financial stability, employment and economic development with social equity".

  • Dollarization: What would happen if Milei's plan was implemented and Argentina changed its currency?

The same Charter indicates some of its attributions, such as regulating the operation of the financial system and applying the Law on Financial Institutions, regulating the amount of money and interest rates, and regulating and guiding credit, and executing exchange rate policy, among others.

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However, it is in Chapter V of the bank's operations where the most problematic point appears for the owner of La Libertad Avanza. This is the possibility of "issuing banknotes and coins in accordance with the delegation of powers made by the Honorable Congress of the Nation."

Milei's idea is to eliminate monetary issuance, considering that it is the only cause of price increases, one of the most pressing problems of the Argentine economy. "Inflation is always and everywhere a monetary phenomenon," he insisted.

The Central Bank of the Argentine Republic (BCRA), on November 21, 2023. (Erica Canepa/Bloomberg via Getty Images)

Closure of the BCRA and dollarization

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. In some interviews, he has mentioned that his plan includes a conversion value close to the so-called "blue" dollar (around $1,000), something that many economists are wary of, because they understand that with the amount of dollars in Argentina it is impossible to dollarize at the value of the informal dollar.

Specialists consulted by CNN warned about the possibility that the Central Bank will lose its ability to influence monetary policy by not having the capacity to issue currency and disappear as a lender of last resort.

  • Milei's victory, with dollarization in his sights, puts the future of the Argentine peso in doubt

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.

However, this reform, which involves dollarization and the elimination of the Central Bank, would correspond to a third stage of management, in a plan that contemplates an execution of 35 years.

Javier Milei, President-elect of Argentina.

In addition, after the alliance that Milei sealed with Mauricio Macri and Patricia Bullrich – previously his opponents – the project has once again been debated inside the new space. In fact, this week a source from Milei's team told CNN that Luis Caputo will be the economy minister as of December 10.

Caputo is a man in former President Macri's inner circle, in addition to having been finance minister and president of the Central Bank during his government. Analysts say his appointment could be a signal against the Central Bank's dollarization and elimination plan.

CNN's Emiliano Gimenez contributed to this report.

Central BankElections in ArgentinaJavier Milei