Is the dollar the correct answer to the region?
During his campaign, Argentine President Javier Millie promised the closure of the country’s central bank and the approval of the dollar as the currency of the country. Once elected, changed his strategy. The natural dollar approach includes restrictions on the supply of peaso, forcing Argentina to use their dollar reserves to pay daily expenses.
With the stability of the bizo, inflation reached 117 % in December 2024, a decrease from 292 % of the highest level in the year April, and the dollar is expected to increase, including daily transactions. “Argentina is now dependent on two official currencies, and Miley depends on people’s savings in dollars to increase the American currency in the local economy,” Jose Leoni, Managing Director of MoneyMinds.
According to iones, the dollar must be a temporary solution, as the main economic problems are not solved by only controlling currency emissions. Government accounts in dollars, and there are no insufficient savings to pay these debts. “It may not provide sufficient resources for the economy, and this measure does not solve all issues,” Leoni says.
According to Fábio Giambiagi, a researcher at the Brazilian Institute of Economics, a unit from the GETULIO VARGAS Foundation, there is no suitable way to implement the dollar. “Argentina does not have reserves to make this transition; without dollars, no dollar.” “Dependence on the personal savings to measure government is not the replacement of the currency.”
Eduardo Borensztein and Andrew Berg, authors of the “Full Dollar: Pros and Negatives”, is studying in 2000 by the International Monetary Fund (IMF), potential advantages and full dollar defects from the perspective of any solid country. They reveal that the dollar may seem more extremist than it is: the use of the US dollar or some somewhat main currency in most developing countries, especially in financial contracts.
“The main gravity of the complete dollar is to eliminate the risk of the country’s sudden decrease in the country.” “This may allow the country to reduce the risk allowance associated with its international borrowing. The dollar economies can have a higher level of confidence among international investors, low interest rates on international borrowing, reduce financial costs, and more investment and growth.”
Latin America experience
This is hardly new. Panama was the first country in Latin America to adopt the US dollar, in 1904, shortly after independence from Colombia. Almost a century later, Ecuador and El Salvador followed their example, with Ecuador turning in 2000 and El Salvador in 2001. But do they take the appropriate steps to control their economies?
According to the Brazilian economist Utaviano Kanoto, former Vice President of the World Bank and its oldest colleague in the center of politics in the new south, it is logical to some smaller economies in Latin America, such as Panama, El Salvador and Ecuador, to officially use dollars to control the economy. He says: “Panama’s economy is making a lot of transactions in dollars on a channel, with container ports and the main registry,” describing it as a natural path.
The dollar can make imports cheaper and export more expensive, depending on the price relationship with other currencies. Consequently, the prices of imported goods tend to be more stable, but local goods and services may increase, especially if the local demand rises.
Since Panama’s adoption in 1904 for the US dollar, the local currency in the country, Baboa, distributed it along with the dollar. This was aimed at maintaining economic stability and opening the economy to trade.
Ecuador witnessed a significant decrease in inflation and volatility after the dollar in 2000. World Bank data indicates that inflation reached 96.1 % in 2000, then decreased to 2.6 % from 2004-2007. However, the country is still facing challenges related to its dependence on transfers and goods exports. “The country controls its inflation and concerns it with foreign currency reserves, so inflation has been controlled. Kanoto says:” Oil production also helped stability. “
However, there are positives and negatives. The World Bank says that its authors of 2024, Ecuador: is increasingly flexible for a better future, “found that the main structural barriers for growth include widespread intervention in the market, lack of competition, limited trade integration, and regulating strict workers. The country may also face sectoral restrictions that prevent them from exploiting opportunities in sectors that already have relative advantages, such as sustainable mining. And agriculture and tourism.
In El Salvador, the employment of two currencies – Colon and the dollar – is logical since a large number of expatriates have lived in the United States, and the dollars in the economy regularly. The inflation was not high in 2001, about 3.75 %, but personal transfers accounted for 15.7 % of GDP. After the dollar, this rate rose to 21.8 % by 2006 and was 24.1 % in 2023, according to the World Bank data. However, the country is still facing economic challenges, such as low productivity and dependence on transfers, which can affect price dynamics.
Pros and negatives
Emilio Ocampo was an economic advisor to Millennium during the 2023 presidential campaign and the designer of the dollar plan for Argentina. OCAMPO is also a professor of finance at the University of Buenos Aires in Sima. He explains that the most important factor is the currency that people prefer in this particular country. “In the case of Argentina, the preference is clear to the US dollar, although there is no tender legal status,” he noticed. ))
He also adds that countries with a history of continuous inflation, rise, volatile and population who want to adopt the dollar are the main candidates for the dollar.
“If a state adopts a dollar as a legal tendency, it must eliminate the central bank. Otherwise, the possibility that the uncleal politician is trying to use it in the future, especially in countries addicted to populism,” Ocampo explains. “We have seen how (former Ecuadorian President Rafael Correa) used the central bank to finance part of his excessive spending. The damage he caused was huge. Ecuador was still dealing with the legacy of Korea’s policies.”
OCAMPO supports the entire region that adopts the dollar. “It will make sense for Latin America to reach the dollar and integrate with the American economy. The greater integration in the Americas will create the most powerful economic bloc in the world.”
However, the United States must stay away from protectionism. Brazil is unlikely to give up its currency. But if Argentina adopts the dollar as a legal tendency, there will be momentum for other countries in the region.
The dollar is an economic reform with a strong political element. On the one hand, it limits the government’s maneuvering room by preventing it from printing banknotes to financing financial spending. On the other hand, the dollar makes the country’s government depend on the decisions taken by the United States regarding monetary policy. Indeed, by adopting the dollar, the two countries lose the ability to implement independent monetary policies.
Although inflation may be controlled, the blogged countries must manage their financial policies effectively. Ability pressure may arise if a healthy financial balance is not maintained.
