In Argentina, some retailers have adopted a radical new pricing system – the U.S. dollar. In countries like Venezuela with high levels of inflation, this has become commonplace as a means of keeping prices stable and avoiding the need to repricing items every day. But what does this mean for retailers in Argentina? This article explains the concept of “dollarization” and how retailers in Argentina are taking steps to adopt it as a way to combat inflation and keep prices steady.
“Dollarization” in Argentina
In recent months, several retail stores and other retailers in Argentina have begun to price their goods in U.S. dollars in order to avoid constant repricing from the devaluation of the Argentine peso. This new move has been dubbed “dollarization” and is increasingly becoming more visible throughout the country.
Among the items being priced in dollars are clothing, sneakers, t-shirts, caps and some basic products that are sold in supermarkets. Customers can still pay with Argentine pesos using the informal exchange rate to calculate the price. This conversion process of course applies to those cases when payment is done with Argentine pesos instead of paying directly with US dollars.
Alfredo González, a representative of the Argentine Confederation of SMEs, explains that providers are also setting their prices in U.S. dollars when dealing with imported products, where there is an automatic adjustment given the fluctuating exchange rate against the US dollar. In other words, the suppliers receive fewer pesos for those items they deliver due to devaluation which takes place on a daily basis, so they must adjust their prices accordingly and charge in US dollars because of this legal tender’s stability, which also encourages customers to buy more often as it prevents them from being affected by devaluation.
The Chilean supermarket chain Supermercados CMPC has recently announced that it would start pricing certain items in U.S. dollars from June 1, 2020 in order to avoid further devaluations of the Argentine peso and its implications for consumers’ purchasing power. According to González, this move signals a change of strategy for businesses that want to remain competitive and protect their customers from currency fluctuations.
This “dollarization” move has been met with a lot of criticism from economists and experts who argue that this measure will not solve Argentina’s economic problems such as inflation and currency devaluation since it simply shifts the burden on businesses while ignoring other factors like political crisis or government policies that affect Argentina’s economy overall. Nonetheless, it remains clear that more businesses are choosing to employ this measure as a form of protection against further devaluation of the local currency.
Argentinian Retailers Adopt U.S. Dollars
The use of the U.S. dollar as a unit of account for pricing goods is increasingly common in several Latin American countries. In Venezuela, for example, retailers are using U.S. dollars to price even the most basic products, as a result of the dramatic economic crisis and hyperinflation that country has been experiencing for years. Now, it appears that similar measures are starting to appear in Argentina.
In some outlets, items are being priced in U.S. dollars instead of their native currency, the Argentine peso. The move has been seen as an effort by retailers to protect their profits from inflation, which is currently estimated to be over 50%. It is worth noting that the peso has lost more than half its value against the U.S. dollar since the beginning of 2019 – a fact that has contributed significantly to the devaluation of the local currency.
As noted by economists, while this trend may have some benefits in the short-term, it could also have serious implications in the long-term. For starters, it could lead to higher prices for consumers and could further decrease their purchasing power – something that would only exacerbate an already difficult economic situation in Argentina.
In response to this new measure, the Argentine government is seeking measures to control inflation and their fiat currency’s devaluation. President Alberto Fernandez mentioned a planned summit in March to discuss a joint initiative between selected Latin American countries to combat inflation and other economic problems affecting the region – such as high interest rates and macroeconomic imbalances.
The outcome of that meeting will be critical for all countries involved and will determine how effective these new measures can be in resolving Argentina’s current crisis – or if they will ultimately fail, like similar plans implemented during recent years in Venezuela and elsewhere in Latin America have done. Ultimately, what is clear is that retailers in Argentina now have no choice but to accept U.S dollars as units of measure due to Argentina’s current economic troubles–a reality that mirrors what was experienced by Venezuelans over the past few years due to hyperinflation and devaluation of their own currency.
The current economic crisis in Venezuela has had a ripple effect, causing retailers in Argentina to dollarize prices. This is an indication of the seriousness of the Venezuelan crisis and how it is affecting the entire region. Dollarization in Argentina is a sign of how deep the crisis runs, and the only solution may be to seek out new opportunities and begin rebuilding the economy. With continued support from the international community, both Venezuela and Argentina have the potential to stabilize and rebuild for a brighter future.