The dollarization of the economy: the difference between being a viable country or being Argentina from inflation

The use of the dollar in the economy is a process by which it is carried out in Argentina We can get rid of the lab of the poor, which is the peso by using the dollar as legal currency And with the aim of eliminating the central bank during this process.

Argentina during the period of convertibility had a bi-currency. That is, there was a local currency, which led to the possibility of exit for issuance. What dollarization does not allow is precisely that monetary issue simply because Dollar Factory in the United States And for those who see that the issue is the cause of inflation, the central bank of the state prohibits its issuance It leads that said inflation is not self-created by the central bank.

Talking about dollarization is a long process. To disentangle it we have to know what is its purpose or what is the role of the central bank, whose function is to be the lender of last resort, in case the bank is to run and all the citizens come out to withdraw deposits from the banks, it is the central that will give back and give the money to each bank.

This happens with savings. With savings of individuals, the bank operates and provides loans to individuals. Which is called a “fractional reserve” and therefore only a fraction of the savings are held. Out of 100% of what is deposited, only 10% remains in the bank. The remaining 90% is operated by the bank. The reversal is that if all the population goes out to withdraw their money from the banks with their deposits, there will be no more money available and that is exactly when the central bank, given its character as a lender of last resort, appears to cover up a monetary issue which translates into inflation.

So How to deal with dollarization and the lack of this problem? Specifically by reforming the financial system; What will be the “Simon Bank” which means dividing the banks into two groups: A group of banks called “bank deposits”, where only savers’ money is deposited without charging interest with payment to leave the money stored there; And another is called “investment banking”, where those who want profitability have the possibility to use this system, which involves risks and individuals will face without compromising the rest.

So, Dividing the banks into these two groups, the role of the last lender of the central bank would have no reason to do so. They will be excluded from the problem because only those who want to protect their money go to the first group (bank deposits) and those who decide to go to the second group will accept that this other group has risks, compensated at an interest rate, but within the voluntary decision of each saver without compromising the others .

The countries of the world that chose to dollarize their economy are many. There is the case of Ecuador, which did that in 2000 when inflation hit 90% and lowered it to 2% in two years. She had a certain per capita GDP that ended up doubling it 4 times.

The same thing happened in Argentina when convertibility came into play. More examples are some of the Caribbean islands, which share a monetary union. The case of the euro is also an example where different countries adopted a common currency, with the peculiarity they invented, but were practically adopting the German mark with another name so that the French would not be offended. All of these examples have a common outcome, which is that they were good.

There is a fact that the world enters a recession every 10 years (Covid now, 2008 crisis, US recession in 2000/2001), but in Argentina, the nation’s central bank issues every day and robs Argentines of their salaries every day of their lives.

If we were given a choice, it would be this or the possibility of an external shock, and before that, we would, in turn, have the tools that would allow us to face that shock.

Elimination of the central bank of the nation, after the reform of the financial system, will become the “anti-corruption”, and it will be the individuals who determine the currency in which they carry out their transactions. AndArgentina, for sure, this option would be the dollar because it is the currency that Argentina has already chosen to protect themselves, despising the Argentine peso, without falling into the fallacy of monetary sovereignty.

We must solve inflation in Argentina with facts, not campaign stories. No endemic solution will be magic. It must be structural and sustainable. This requires real political leadership, alignment and a project of a long-running capitalist country..

It is up to us to be a republic like the one we knew how to be in 1895, when Argentina reached number one per capita GDP, when there was no central bank and we were the richest and most advanced country in the country. Globalism; Or the other option is to continue to be the capital of socialism in solidarity with others: the money of others is in the hands of a political class that is more valid today than ever.

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