- The crash of the peso has fueled calls for Argentina to adopt the dollar as its currency, but economists warn that such a move could have bad consequences.
- “Argentina needs cuts in government spending and a recession to solve this problem,” said Robin Brooks, referring to the peso’s plunge.
- Argentina’s leading presidential candidate has urged the public to introduce the dollar to combat hyperinflation.
Argentina needs a recession, not dollarization, to fix its broken currency, according to one economist.
The South American country has been participating in recent international moves to reduce its reliance on the dollar for trade and investment for some time, but the recent crash of the peso has led to calls for it to actually adopt the dollar as its local currency. rising. .
Argentina’s leading presidential candidate, Javier Milay, has urged the country to ditch the peso and switch to the dollar to combat triple-digit inflation. Some market experts have expressed similar views, with top economist Steve Hanke urging Argentina to shut down its central bank and dollarize.
However, not everyone agrees.
“The peso is crashing as Argentina lives beyond its means. Look at imports (red). This is close to a historic peak. Argentina is trying to solve this with cuts in fiscal spending and We need a recession, and it’s a matter of how we do it in a fair way.” “This election is not about dollarization,” said Robin Brooks, chief economist at the Institute of International Finance. in the post of X.
“Argentina is keen on dollarization, aka the peg to the US dollar. This is a strange timing, considering it was blown up.” %), Sri Lanka (-44%, pictured), Ukraine (-36%). Now is not the time to nail it,” he later said. post.
The Argentine peso fell 20% against the dollar last week, largely due to a sharp shortage of the US dollar and concerns over the country’s high inflation and debt. In response, the country’s central bank raised the base rate by 21 percentage points to 118% in a bid to calm the market.
Annual Inflation Rate in Argentina was 113.4% in July, according to government data released Tuesday. The rate is still close to June’s peak of 115.6%, the highest since 1991.
The country’s external debt soared to 45% of GDP, or $277 billion, by the end of 2022, according to CEIC data.