Argentina is once again wrestling with its long-time enemy – inflation. Now, it appears history may soon repeat itself, as Argentina teeters on the verge of another currency crisis. As of Tuesday morning, the black-market ARD/USD exchange rate hit 9.87, meaning the peso’s value now sits 47.3% below the official exchange rate.
This yields an implied annual inflation rate of 98.3%. For now, the effects of this elevated inflation rate are being subdued somewhat by Argentina’s massive price control regime. But, these price controls are not sustainable in the long term. Indeed, the short-term “lying prices” they create only distort the economic reality, ultimately leading to scarcity.
There is, however, a simple solution to Argentina’s monetary problems – dollarization. I have advocated dollarization in Argentina for over two decades – well before the blow up of their so-called “currency board”. To put the record straight, Argentina did not have a true currency board from 1991-2002. Rather, as I anticipated in 1991, the “convertibility system” acted more like a central bank than a currency board. This pegged exchange rate system was bound to fail… and fail, it did.
The 2001-02 Argentine Crisis could have easily been avoided if the country had simply dollarized. Argentina had more than sufficient foreign assets to dollarize their economy even late into 2001. But, the Argentine government – through a series of policy blunders – ended up “floating” the currency. Not surprisingly, Argentina is now back to where it was in the late 1980s.
So, how can Argentina dollarize? In short, the Banco Central de la Republica Argentina (BRCA) would take all of the assets and liabilities on its balance sheet denominated in foreign currency and convert them to U.S. dollars. The Central Bank would then exchange these dollars for all the pesos in circulation (monetary base), at a fixed exchange rate. By my calculation, the BRCA would need at least $56.36 billion to dollarize at the official exchange rate (as of 23 April 2013).
As of April 23, the BRCA had net foreign assets equivalent to $31.23 billion. If Argentina were to dollarize at the official ARD/USD exchange rate of 5.17, it would still fall $25.13 billion short of the $56.36 billion needed to cover the monetary base. That said, if the BRCA were to use an exchange rate closer to the black-market (read:free-market) exchange rate, this could be more easily accomplished.
For example, if Argentina decided to dollarize at an ARD/USD exchange rate of 9.33 pesos to the dollar (5.5% lower than the black-market ARD/USD exchange rate as of Tuesday) only $31.23 billion would be required to cover its monetary base and dollarize the economy. This is the exact amount of net foreign assets held by the BCRA (see the accompanying table).
The end result would be an Argentine economy free of the inflation that has plagued it for decades. Indeed, Argentina could finally experience those benefits enjoyed by other dollarized countries, like Ecuador. Below, I present (with only one minor change) my blueprint for Argentina’s dollarization, which I first presented over a decade ago.
This yields an implied annual inflation rate of 98.3%. For now, the effects of this elevated inflation rate are being subdued somewhat by Argentina’s massive price control regime. But, these price controls are not sustainable in the long term. Indeed, the short-term “lying prices” they create only distort the economic reality, ultimately leading to scarcity.
There is, however, a simple solution to Argentina’s monetary problems – dollarization. I have advocated dollarization in Argentina for over two decades – well before the blow up of their so-called “currency board”. To put the record straight, Argentina did not have a true currency board from 1991-2002. Rather, as I anticipated in 1991, the “convertibility system” acted more like a central bank than a currency board. This pegged exchange rate system was bound to fail… and fail, it did.
The 2001-02 Argentine Crisis could have easily been avoided if the country had simply dollarized. Argentina had more than sufficient foreign assets to dollarize their economy even late into 2001. But, the Argentine government – through a series of policy blunders – ended up “floating” the currency. Not surprisingly, Argentina is now back to where it was in the late 1980s.
So, how can Argentina dollarize? In short, the Banco Central de la Republica Argentina (BRCA) would take all of the assets and liabilities on its balance sheet denominated in foreign currency and convert them to U.S. dollars. The Central Bank would then exchange these dollars for all the pesos in circulation (monetary base), at a fixed exchange rate. By my calculation, the BRCA would need at least $56.36 billion to dollarize at the official exchange rate (as of 23 April 2013).
As of April 23, the BRCA had net foreign assets equivalent to $31.23 billion. If Argentina were to dollarize at the official ARD/USD exchange rate of 5.17, it would still fall $25.13 billion short of the $56.36 billion needed to cover the monetary base. That said, if the BRCA were to use an exchange rate closer to the black-market (read:free-market) exchange rate, this could be more easily accomplished.
For example, if Argentina decided to dollarize at an ARD/USD exchange rate of 9.33 pesos to the dollar (5.5% lower than the black-market ARD/USD exchange rate as of Tuesday) only $31.23 billion would be required to cover its monetary base and dollarize the economy. This is the exact amount of net foreign assets held by the BCRA (see the accompanying table).
The end result would be an Argentine economy free of the inflation that has plagued it for decades. Indeed, Argentina could finally experience those benefits enjoyed by other dollarized countries, like Ecuador. Below, I present (with only one minor change) my blueprint for Argentina’s dollarization, which I first presented over a decade ago.
el loco este como esta con los Yankees no entiende nada de nada.
primero hay que robar bien a todos los pesificados para «redistribuir»
como corresponde desde los nabos (que creyeron) hacia los vivos (que no creyeron),
cuando esten como Adan «en bolas y a los gritos» por haber confiado en el
«modelito» ahi si podran dolarizar, pero primero hay que prender la licuadora
bien fuerte!!!
la puja distributiva loco..! la puja distributiva..!!!!
Ese Steve Hanke si que está del tomate!
puede ser que el carcaman de la Johm Hopkins este del tomate, pero manejo durante muchisimo tiempo uno de los fondos de activos argentinos de mayor exito. El loco este no es de los que hablan al dope, el loco cuando abre la boca pone la manteca ariiba de la mesa.
Algunos fragmentos son realmente imperdibles:
Argentina is now back to where it was in the late 1980s.
Indeed, Argentina could finally experience those benefits enjoyed by other dollarized countries, like Ecuador
Desopilante…
La estatizaion de YPF nos vuelve a los 80.
La reforma de la Carta Organica del BCRA nos vuelve a los 80.
Los controles de precios y cambios nos vuelve a los 80.
La desaparicion de las AFJP nos vuelve a los 80.
Los deficits fiscales cronicos y la alta y cronica inflacion nos vuelve a los 80.
Empresas publicas en manos del estado nos vuelve a los 80.
Hagamos al reves, digame cuales de las medidas que se tomaron NO nos vuelve a la situacion de los 80. ?
Con ese concepto, YPF, carta organica y todos los etc (menos la inflacion, que al compararla con la de los 80 me da la pauta que no tiene ni la mas palida idea de lo que fue ese proceso) nos pueden devolver a practicamente cualquier decada del siglo XX exceptuando la de los 90, que evidentemente tanto usted como el neo de Cato extranan horrores
Aqui NO estamos hablando de sentimientos,
estamos hablando de hechos.
No tengo ni idea quienes «extranan horrors» o no los 90.
Si se, por ejemplo, que YPF fue creaada como empresa estatal y como empresa estatal fue casi toda su existencia salvo el periodo en que se privatizo.
Por lo que la «revolucion» kirchnerista» no hizo mas que retrotraer las cosas a como estaban antes.
Lo mismo con los otros temas que mencione.
Y con respecto a lo que fue el proceso de los 80, la historia nunca se repite exactamente igual, pero si en forma muy parecida.
Solo deje que el gobierno siga convalidando la «puja distributive» con deficit y emision monetaria y despues me cuenta quien tenia razon.