Argentina Could Go For Dollarization But Cannot Solely Rely On It, Says Economist Who Helped Ecuador Make The Switch In 2000

Francisco Zalles, an economist who played a pivotal role in Ecuador’s dollarization in 2000, shared with Bloomberg that U.S. dollars would likely return to Argentina once it makes the currency switch but it cannot rely solely on dollarization to salvage its economy, Business Insider reported.

Dollarization has become a critical issue in Argentina’s ongoing presidential race, with frontrunner Javier Milei promoting the idea as a solution to escalating hyperinflation and economic instability.

However, some experts believe that adopting the dollar without substantial reserves could trigger a disaster, as a sudden peso-to-dollar transition could drastically reduce the money supply. In addition, adopting the dollar would prevent Argentina from formulating its own monetary policy solutions.

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Zalles admitted that adopting dollars is not the only solution and it has to be complemented with abolishing capital controls and reducing spending on subsidies and state aid.

Nevertheless, Zalles highlighted that Argentinians are already conducting transactions in U.S. dollars due to the peso’s volatility, thereby mitigating the potential negative impact.

“The challenge for Argentina will be whether it’s able to cut deeply into the fiscal budget. If Milei does that, dollarization will be a good measure that will bring the deficit under control through growth,” he said.

Despite Zalles’ insights, a potential Milei presidency does not guarantee dollarization due to a potential lack of political support.

Photo by Valeri Luzina on Shutterstock

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