Dollarization is an issue that has been on the lips of economists in recent days. He warned about the “self-fulfilling prophesy” and the risks it could have
By iProfessional
18/04/2023 – 10,32hs
A private report raised doubts about the feasibility and consequences of the dollarization of the Argentine economy proposed by Javier Miley and warned about the “self-fulfilling prophesy” that could generate a run against the deposits in pesos.
According to this report, if Javier Milei becomes President of the Nation and carries out this idea, it would imply that the Cash with Liquidation (CCL) increase to $800 taking the current parities of the treasury bonds in dollars at 25%, so as not to get financing. If the bond parities are very low, the CCL needed to dollarize increases. In this sense, for dollarization it could be necessary to restructure leliqs – and therefore, the fixed terms-.
What happens with the liabilities of the Central Bank
Javier Milei starts from the idea that the liabilities of the Central Bank have support. In this sense, the problem with dollarization is that the Leliq and the passes are more than double the monetary base. To repurchase the monetary base and the Leliq in total, US$44.750 million is needed at the current CCL.
On the other hand, they affirm that dollarizing “it would require a level of confidence from the world in the plan that is almost impossible by 2024.”
“Having net reserves of just US$1.8 billion, to dollarize the CCL we have today we need to get US$43 billion, a figure similar to the standby that Mauricio Macri received from the IMF. Another way of looking at it is that using only the current net reserves, the conversion exchange rate to redeem all BCRA liabilities is $9,944, which arises from dividing $17.9 million by $1.8 billion,” they asserted.
In the same study they also ensure that with this level of low reserves (estimated at around US$1.8 billion), it would need to raise US$11.7 billion to be able to rescue the base if it wanted to dollarize today.
Milei proposes to dollarize the Argentine economy: what should be the exchange rate
Criticism of the dollarization plan
Emmanuel Álvarez Agis was critical of the dollarization project promoted by Javier Milei and said that “he would not have the money in the bank if there is a certain chance that Milei wins” given the dollarization project and his intention to “set fire to the Central Bank”.
In this regard, Javier Milei went out on Twitter to respond to critics of his dollarization project and called them “lazy” and having “zero market logic,” among other qualifications.
“I do not want to call misfortune, but if someone says that their economic program is to set fire to the Central Bank, which is the entity that regulates the banks, I would not have the money in a bank,” said the former vice minister of Economy in statements television.
The director of PxQ indicated that it seems that Milei has the self-fulfilling prophecy strategy and the idea of the worse the better, since every time there is bad economic news their voting intention improves.
“If I say ‘if I win, the next day I’m going to kill Jairo (by Jairo Staccia, the interviewer)’, When I measure 24 points you are going to start packing; And when the Sunday of the election arrives and you realize that I can win, you will be gone,” said Álvarez Agis.
The economist explains Milei’s growth in the polls because people are tired of the options of the Frente de Todos and Cambiemos, since they are two administrations that have failed in economic matters in their efforts.
Milei responded to criticism of dollarization: what did he say
Milei responded to criticism of dollarization: what did he say
From his Twitter account, Javier Milei answered the criticism and clarified some points about the misconceptions he understands from his critics: “I see criticism of our dollarization proposal and I notice.”
I see criticism of our dollarization proposal and I notice: 1. Ignorance of the balance of BC2. Lack of skill to derive the demand for money in static and dynamic general equilibrium3. Ignorance of the role of the transversality condition4. Null market logicFLOJOS — Javier Milei (@JMilei) April 17, 2023
And he completed with a second tweet: “From my point of view, given the rate of inflation and its history, where the origin is the fiscal voracity and passion for robbery of the Argentinian politician, there is no way to have domestic currency. Therefore, I think, it would be better to discuss how to dollarize rather than vomit, which is impossible.”
A few hours later he directly pointed to Álvarez Agis: “The same as in a note in P12 He said that the issue was lowering inflation… an act of olympic ignorance by ignoring the lags of monetary policy…”.
