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Why it's impossible to get dollarized in Argentina

Before starting to analyze the feasibility of dollarization for Argentina, it is necessary to emphasize, for those who are nostalgic about the convergence that was applied here in the nineties, that dollarization is something very different from it. It is not the same to have a national currency with a fixed and unchangeable exchange rate, which must also be in line with the monetary rule for equalizing the monetary base with the amount of reserves that directly use the monetary sign of another country. We will see, it will go point by point:

a) The dollarization is unconstitutional and, therefore, illegal. In fact, Article 75 paragraph 6 of our Constitution determines that there must be a federal bank with a power to issue currency. It is the national currency, the central bank and the sole issuer of the national currency.

b) The dollarization is not just such a measure, it can be taken only one day because someone has become with the ideas changes. To be dollarized, it is necessary to exchange all pesos that are deposited in banks and in circulation among people, for dollars on the reserves of BCRA. And they must be reserves with free availability, otherwise this exchange will be impossible. Therefore, from the 66,000 million reserves of the BCRA it would be necessary to deduct the reserves of argendollars, which are close to 17,000,000,000 USD and 19,000,000 US dollars from the exchange of currencies with China which are not reserves of free availability. There will be 30,000 million dollars from which it will be necessary to seize other funds that are not freely available reserves, and very likely the money from the IMF that was assigned to pay the debt and not to be valued. But suppose that $ 30,000 million can be used with magic. Well, the amount of deposits in pesos and circulating in the public far exceeds $ 100 billion, so you have to make a devaluation of more than 300% to be able to dollarize. You need a dollar of about $ 150 per dollar. It is worth remembering that the required amount of reserves for dollarize is much greater than that required in convertibility, since in dollarization it is not enough to exchange the monetary basis for reserves, as if depositors want to withdraw their deposits, banks must be able to submit to depositors 100% of their assets in dollars, so it is necessary to convert 100% of deposits and currency into the public currency.

c) If the probability of failure to fulfill obligations by 2020 does not appear to be low at a low level, or what is then to be said about what would happen in the dollarization: BCRA would have reserved reserves, and the Treasury would count only on the payment not to pay only operating costs, but interest, and even debt capital itself, if the markets decide not to renew it. Therefore, the displacement of dollarization is from a multiple tax point of view: the risk of default is due to debt, pensions and public sector wages, if recovery is not sufficient with a possible recession or another factor and markets do not finance the shortfall. The problems do not end there: you could not have a floating debt like the one we have today, because you risk falling into inability to manage, and by default it will be an omnipresent spirit. The country's risk would be stratospheric in Argentine dollarization.

d) The external accounts of the country, whether they are a trade balance or a capital account, will expose the financial sector to experiencing moments of insolvency in the event of a deficit in the trade balance or residence abroad for which there will be no possibility of temporary financing from any monetary authority. In this case, dollars will leave the financial system abroad, leaving many banks in a very compromised situation. Banks will be the first to fall into a real meat mill that will be dollarization in our country.

e) From the point of view of the level of activity, the Argentine economy would be left to the situation with the relative prices that the United States Federal Reserve would raise or lower the interest rates that it would like to impose on that economy for reasons that are not completely related to the Argentine economy. If the dollar rises or falls sharply in the world, the Argentine economy will be exposed to sudden recessions or enlargements without being able to adjust it to interest rates or instruments that increase or reduce liquidity.

f) From the point of view of the profitability of the banking sector, dollarization would require a very high reserve requirement, as it would be necessary to prevent the escape against the bank to leave it without money from dollars to attend the withdrawal of deposits. . The fall from one bank will quickly become a systemic term, as the public will know quite well that there is no possible assistance from BCRA to any bank. But it will be Hamlet's own dilemma, given that with high reserve requirements in dollars in Argentina, the banking business would travel overseas.

g) Argentina's debt with the IMF will become eternal. We could never pay the Fund and we thank it because we will need to raise a surplus of US $ 57,000 plus interest on cancellation of the loan or otherwise find other financing that would be impossible to obtain if we consider that probably no one I would like to make new money in a country that has no fiscal policy or monetary policy and has a high likelihood of default.

And there are many, many problems more than a brevity that we can not name here. In a nutshell, the few noisy libertarians, after the frustration caused by the inability to eliminate the Central Bank or go to multiple private issuance of coins, are close to organizing a rescue to dominate. They are likely to be frustrated again. It would not be surprising that, with the eccentricity and extremism characteristic of these economists, the next retrograde idea of ​​this virally anti-inflammatory anarcho-capitalist current, which guides Argentine liberalism to dangerous sterility, is no more and nothing less than the establishment of a barter



Walter Graziano and associates

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