Dollarize Argentina Now

Steve H. Hanke Argentina is once again wrestling with its long-time enemy – inflation. Now, it appears history may soon repeat itself, as Argentina teeters on the verge of another currency crisis. As of Tuesday morning, the black-market ARD/USD exchange rate hit 9.87,  meaning the peso’s value now sits 47.3% below the official exchange rate. This yields an implied annual inflation rate of 98.3%. For now, the effects of this elevated inflation rate are being subdued somewhat by Argentina’s massive price control regime. But, these price controls are not sustainable in the long term. Indeed, the short-term “lying prices” they create only distort the economic reality, ultimately leading to scarcity. There is, however, a simple solution to Argentina’s monetary problems – dollarization. I have advocated dollarization in Argentina for over two decades – well before the blow up of their so-called “currency board”. To put the record straight, Argentina did not have a true currency board from 1991-2002.  Rather, as I anticipated in 1991, the “convertibility system” acted more like a central bank than a currency board. This pegged exchange rate system was bound to fail… and fail, it did. The 2001-02 Argentine Crisis could have easily been avoided if the country had simply dollarized. Argentina had more than sufficient foreign assets to dollarize their economy even late into 2001. But, the Argentine government – through a series of policy blunders ...
Source: Cato-at-liberty - Category: Health Medicine and Bioethics Commentators Authors: Source Type: blogs