this post was submitted on 14 Dec 2023
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Economics

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[–] [email protected] 2 points 11 months ago

This is the best summary I could come up with:


Milei ran on a radical libertarian platform, whose most notable proposal called for eliminating Argentina’s currency, the peso, and replacing it with the U.S. dollar.

But the fact that many people apparently believed that dollarization would solve Argentina’s problems was just the latest example of the enduring power of magical monetary thinking.

And Argentina, having pegged itself to the dollar, found its currency rising in value on world markets, making its exports increasingly uncompetitive and deepening its recession.

And of course, abandoning the peso entirely for dollars would have the same problem: Argentina would, in effect, tie its economic policy to that of a nation that has very different issues and isn’t even its main trading partner.

As in later episodes, this monetary strategy wasn’t backed by adequate reform of other policies and ended up in a balance of payments crisis and resurgent inflation.

To quote Voltaire, which we do all too rarely in economics, “certain words and ceremonies will effectually destroy a flock of sheep, if administered with a sufficient portion of arsenic.”


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[–] [email protected] 1 points 11 months ago (1 children)

It's basically the gold standard. The country not having the ability to devalue is exactly the point.

The monetary trilemma is that you have to choose 2: monetary independence, exchange rate stability, and free capital flow. Dollarizing picks exchange rate stability over monetary independence. There are downsides but it's a legitimate choice, there are upsides too.

[–] [email protected] 1 points 11 months ago

The gold standard is a very bad idea though. It's incredibly valuable for a country to have it's own currency that can adjust to meet the situation.

[–] [email protected] 1 points 11 months ago