President Javier Milei announced this Saturday that he is “getting closer” to dollarizing the economy due to the amount of reserves that the Central Bank (BCRA) has accumulated since last December 10. “We have US$7 billion in reserves and US$8 billion in monetary base,” Milei said in statements to Radio Miter.
Specifically, since the December devaluation, the BCRA managed to buy reserves every day, except on January 31, when it had to sell US$10 million. Thus, since the new Government took office, the entity acquired more than US$6.9 billion. In any case, reserves grew by US$5.3 billion because there were payments to the International Monetary Fund (IMF) and bondholders.
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However, the president clarified that he does not believe that it is possible to achieve dollarization in 2024 because “more financial reforms” are needed. Days ago, Milei said that free currency competition “is the final step of an entire process.”
The details of Javier Milei's dollarization plan
President Javier Milei ratified the dollarization of the economy, although he ruled out applying the measure this year. Along these lines, this Saturday he explained that “it requires a little more time, because reforms must be made in the financial system to make it suitable for a dollarized system. We are so close”.
“The monetary base in pesos remains the same, but the dollars that support it are increasingly larger,” said Milei.
According to the president, free currency competition “is the final step of an entire process.” “If we maintained the BCRA's current sanitation pace, it would only be clean at the end of June. Adapting the financial system model can take a year,” Milei had declared a few days ago.
The details of Javier Milei's dollarization plan (Photo: Reuters)
Regarding the reform of the financial system, Javier Milei had announced that he was going to create an “anti-run bank” and then move on to a “free banking” system.
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“You can pay the Central Bank in any currency, although the simplest thing is to do it in dollars. However, this does not mean that individuals use the dollar as currency. The result is a basket of currencies where the weights are freely determined by individuals, which neutralizes you from the effects of the monetary policy of a particular country,” he explained.
What is the dollarization of the economy
The dollarization of the economy involves the replacement of the Argentine peso with the US dollar as legal tender. On the other hand, the convertibility that prevailed in the '90s established parity between both currencies, but maintained the circulation of the peso.
A currency fulfills at least three functions: being a means of exchange to acquire goods and services; be a reference of value and a reserve of value, that is, a means to accumulate savings.
In Argentina, due to recurring crises, the national currency is not always chosen to fulfill all these functions and is replaced by a foreign currency such as the dollar, which makes it a bi-monetary economy.