Adam Nir | Unsplash
Lately I have been wondering the following. How difficult is it for a country to undergo a complex process of dollarization?
Argentina is one of the countries that has entered a state of emergency due to high levels of inflation. It is estimated that the inflation rate for the month of January was 20.6%, while in the year 2023 it accumulated to 254.2%.
As expected, the price of basic goods has increased exponentially, posing a serious problem that affects the economic and financial situation of every family.
Something that I found really striking was that when going to the supermarket, the price tags attached to the products are constantly being replaced by others. It also happens that if one, for example, tries to buy a portion of cheese with a certain price, when they go to the cashier they will try to charge a different, much higher price.
In my case, I saw that the product label said $3300 ARS, but when I got to the cashier they told me that the shelf price was $5600 ARS for a quarter of cheese. I also noticed very high price increases in hygiene products, such as the top brand shampoo, which went from being $2400 ARS to $6700 ARS for 400 ml.
Everything indicates that if sufficient measures are not taken, inflation will turn into hyperinflation. This term means that the inflationary increase would be even greater, reaching unsustainable levels. The problem is that printing more banknotes means increasing that level, and for that reason, the president wants to eliminate the Central Bank of the Republic of Argentina. Although for the moment, he needs it to fulfill obligations.
But let's go back to dollarization. If it happens, it would mean the end of inflation as we know it. President Javier Milei estimates that it won't be long until the process begins, and that they have managed to obtain the sum of 5 billion dollars, with a monetary base of about 7.5 billion dollars, which would be the minimum to start dollarizing.
Sean Pollock | Unsplash
The interesting thing is that they are looking for investment options, such as considering BlackRock. The president has had a conversation with Larry Fink, where supposedly the intention to buy Argentine companies through privatization was valued.
Another thing that surprised me was that Forbes has made a video about the immediate request to start the dollarization process, because if it is not done, there will be no success. He also mentioned that the government already has enough dollars. In my opinion, it may be so, but I suppose that there must also be a regulatory process and measures that correspond to the law here or in the United States.
The truth is that time will tell if it was a good idea or not and how much we will be able to adapt once it has happened. For now, our national currency constantly loses its value to the point that physical money (bills) is no longer being used; I have even been looked at strangely for paying with them and required to make the payment digitally.
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