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Cato Institute experts posit that full dollarization of the Argentine economy can shield the average person’s buying power from the impact of dishonest politicians and central bankers who frequently display servitude or sheer ineptitude. The experts emphasize that any seigniorage losses should be regarded as a negligible cost compared to the benefits of dollarization.

Controlling Inflation through Dollarization

Authors of a recent Cato Institute blog post propose Argentina should contemplate dollarizing its economy to guard the buying power of average citizens against dishonest politicians and subservient or inept central bankers. Daniel Raisbeck, a policy analyst, and research associate Gabriela Calderon de Burgos, insist that only complete dollarization can aid Argentina in reigning in inflation, which is currently well over 100%.

The duo support their stance by referring to the inflation rates in the three fully dollarized South American nations: Panama, Ecuador, and El Salvador. According to the blog, contrary to many of their regional counterparts, these three nations did not experience inflation in double digits following the Covid-19 pandemic.

The two authors’ suggestion aligns with a growing number of experts and economists endorsing full dollarization of Argentina’s economy. Notably, Javier Milei, an upcoming presidential candidate, has also indicated his willingness to implement dollarization should he be victorious, as reported by News.

Dollarization and the Sacrifice of Monetary Independence

On the other hand, detractors of dollarization often express the loss of monetary autonomy as a major drawback for inflation-stricken nations considering replacing their currencies with the US dollar. Some also point to the United States’ alleged misuse of the dollar as a reason for countries with failing currencies to resist dollarization.

However, in their blog post, Raisbeck and Calderon de Burgos leverage Panama’s experience since its dollarization in 1999 to refute some criticisms of dollarization. They contend that a study of Panama’s dollarization journey by another Cato Institute expert, Juan Luis Moreno-Villalaz, showed that the country’s banks have been and continue to be capable of resource allocation without significant limitations. Following dollarization, the banks have also been able to adapt their liquidity to meet the local demand for credit or money.

Changes in Panama’s money supply are a result of the interaction between local conditions and global credit market specifics, and are not dictated by the Federal Reserve, Raisbeck and Calderon de Burgos note. They suggest that the Federal Reserve’s influence on Panama is no more than its impact on the rest of the world.

As for seigniorage losses, the profit a government makes from issuing currency, the authors argue that this should be viewed as a minuscule price to pay for the benefits of dollarization. They further state that a lack of substantial dollar reserves should not dissuade countries from adopting dollarization.

What’s your take on this narrative? Please share your viewpoints in the comments section below.

Frequently Asked Questions (FAQs) about Dollarization in Argentina

What is the main proposal of the Cato Institute experts regarding Argentina’s economy?

The Cato Institute experts propose full dollarization of the Argentine economy. They believe that this move will shield the buying power of ordinary citizens from corrupt politicians and incompetent central bankers, and help control rampant inflation.

What are some of the arguments against dollarization?

Some detractors of dollarization point out that countries may lose their monetary autonomy. They argue that countries suffering from inflation should avoid replacing their currencies with the US dollar. Additionally, some people highlight the United States’ alleged misuse of the dollar as a reason for countries with failing currencies to resist dollarization.

How do the authors of the blog post argue against the criticisms of dollarization?

The authors, Daniel Raisbeck and Gabriela Calderon de Burgos, use the example of Panama’s experience since its dollarization in 1999 to counter the criticisms. They argue that banks in Panama have been able to allocate resources without major restrictions and adjust their liquidity according to local demand, despite the dollarization.

What is the authors’ stance on the loss of seigniorage due to dollarization?

The authors believe that the loss of seigniorage, the profit a government earns from issuing currency, should be considered a negligible cost compared to the benefits of dollarization.

Who are some other proponents of dollarization in Argentina?

In addition to the authors, Javier Milei, a presidential candidate in Argentina’s upcoming elections, has also shown his readiness to adopt dollarization should he win the election.

More about Dollarization in Argentina


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Samantha89 July 31, 2023 - 8:50 pm

it sounds promising, but I wonder, how would this affect Argentina’s relations with other countries…especially with USA controlling the dollar.

Jake Roberts August 1, 2023 - 5:55 am

wow! I had no idea that dollarization could help control inflation in such a way…always thought it’d make things more complicated! Go figure.

Aaron_smith August 1, 2023 - 6:04 am

Interesting perspective but aren’t we just replacing one problem with another? Loss of monetary autonomy seems like a big deal to me…

Martina_b August 1, 2023 - 8:44 am

So what happens to Argentina’s own currency? Do they just ditch it?

OliverQueen August 1, 2023 - 3:18 pm

What about the poor, will this really protect their buying power? Seems like just another way for the rich to get richer.


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