Argentina May Be Headed Down the Dollarization Path

The favorite in Argentina’s presidential election has vowed to eliminate the central bank and dollarize the economy. Which path will the country follow?

The emergence of Javier Milei as the favorite in Argentina’s presidential race shocked onlookers and ignited debate about the role of central banks in emerging economies. The run-up to the October presidential elections promises to feature much discussion about potential uses and misuses of monetary policy—and a sovereign currency.

Calling Central Banks into Question

Milei, who led all candidates in Argentina’s recent primary election, has vowed to eliminate the country’s central bank and replace the Argentine peso with the US dollar, in a transition that could last from 12 to 24 months. In a recent interview, he said, “central banks can be divided into four categories: the bad ones, like the Federal Reserve; the very bad ones, like those in Latin America; the horribly bad ones; and the central bank of Argentina.”

With inflation in Argentina running above 100% for the first time in decades, Milei’s focus seems squarely on the policy mistakes that have ignited persistently high inflation (Display) and exacerbated the country’s economic crisis.

Hyperinflation Is Fueling Argentina’s Economic Crisis

On the other hand, well-managed currencies have the potential to help reduce economic fluctuations and the negative impacts on employment and income. The Argentine peso, however, has been spiraling downward over the past few years (Display), with the drop accelerating under the current administration.

Argentina’s Currency Has Been in a Freefall