The economist denied proposing a double market system, but that exchange control be limited to foreign trade of goods
By iProfessional
02/04/2023 – 20,48hs
In his personal blog, the economist Domingo Cavallo clarified his comments regarding his supposed exchange rate unfolding proposal and referred to his recipe for the dollar, within the framework of an economic stabilization plan.
Here is his opinion column.
Some reports that came out in the press of a supposed exchange rate splitting proposal as an ingredient of a new economic organization that I would have done in Punta del Este, have created confusion among liberal friends. I hasten to clarify it.
I am not proposing that a dual market system be the form of exchange organization for a future stabilization plan. On the contrary, the effective stabilization of the economy can only begin the day that the unification and complete liberalization of the exchange market have been achieved.
I tried to explain how to go from a situation like the current one, which starts with many different exchange rates, all set directly or indirectly by the government, to a truly unique and free exchange market, with no restrictions on the movement of capital.
Horse’s proposal
With the current system, the government will continue to lose foreign currency and will have to impose more and more restrictions on imports. The expectation of a devaluation jump in the official market will be accentuated. I have been proposing that exchange control be limited to foreign trade in goods. Now I insist that it will be it is essential to do it after the STEP if it is clear from the result that the future government considers that a single and free exchange market should be reached. In the commercial market, the exchange rate will continue to be determined by the Central Bank until complete unification. Of course, you’ll need to adjust it at least to keep up with inflation, to prevent it from suffering a real appreciation.
“I tried to explain how to go from a situation like the current one, to a truly unique and free exchange market”
All other exchange transactions will be carried out through a free market, without any type of restrictions and without the intervention of the Central Bank at all. Those related to real and financial services will be traded in this market, including collections from service providers abroad, capital transfers, including repatriations and dividends, but also income decided by direct or financial investors and hoarding without limitation of amounts.
The exchange rate that will result in this free market will have the ceiling imposed by the desire of holders of dollars in the country or abroad to supply it because they are attracted by the high price that they will be able to obtain by selling their currencies in the present in comparison with what they expect them to be worth in the future.
The announcement by a new government that progress will be made towards unification and total liberalization will mean that, from a certain price of the free dollar, the trend will be towards real appreciation, no to depreciation. This trend will be accentuated when the new government begins to adopt decisions that restore the balance between relative prices and fiscal accounts.
The important thing about this exchange scheme for the transition is that the convergence towards the single and free exchange market will take place through the appreciation of the free exchange rate and exporters will have no reason to delay their exports because it will be clear that the unification of the exchange market will not imply a significant devaluation jump of the commercial exchange rate.
