The Dollarisation of the world is happening faster than you can say “the Dollar is going to collapse”. The surprise election victory of Javier Gerardo Milei’s party in Argentina plans to bring Argentina’s prolonged and never-ending hyperinflation saga to an end with one simple trick: Dollarisation. In addition to Dollarisation, Javier Milei is also proposing drastic removals of capital controls, tax reform (less taxes and also more controlled fiscal spending) and the abolition of the central bank.
Javier Milei is a strange hybrid between conservative Catholicism and libertarianism and for this mixture of ideals, he is often categorised as far-right or ultra-right. He has also endorsed Donald Trump and Jair Bolsonaro, so the label of him as far-right is merited, especially since both Trump and Bolsonaro rejected the results of the ballot box. However, In Argentina, right now, the need to do the most obvious and the most necessary thing, that of addressing its never-ending monetary crisis, is taking precedence over the risks to democracy by a President who has no qualms about associating with politicians who went against their own democracy. For far too long Argentina has been ruled by an incompetent political class that has ruled simply by the grace of traditional political allegiances – now, these traditional allegiances are collapsing.
Argentina’s Dollarisation of the economy is inevitable if other monetary crises serve as a guide. There’s little prospect of Argentina ever paying its debts, reducing fiscal spending and inflation, and turning its situation around if it keeps its Byzantine fiscal and monetary system. For Argentina, getting rid of the Peso would also be the start of getting rid of the current Byzantine monetary and fiscal regime that has kept the government in a perpetual cycle of spending, debt, and inflation. With Dollarisation, the exchange of goods and services would ease and stabilise further, FDI increasingly welcomed and inflation subdued. I would love to hear a convincing and better alternative for Argentina than Dollarisation.