Dollarization of Argentine economy is not easy, says Brazilian Central Bank president

Roberto Campos Neto, the head of the Central Bank, commented on Thursday, 17th August 2023, that Javier Milei’s proposal to dollarize the Argentine economy presents significant challenges.

Milei recently led the Argentine primary election. One of his main pledges involves replacing the Argentine peso with the U.S. dollar.

During a discussion with Poder360, Campos Neto pointed out that transitioning to the U.S. dollar requires immense investor confidence to ensure stability in the Argentine economy.

He emphasized the essentiality of having sufficient dollar reserves for such a transition.

Milei criticizes the nation’s Central Bank and the local government for the peso’s depreciation, advocating for substantially reducing the state’s role in cutting public expenses.

“Dollarizing the economy at this juncture is no easy feat,” Campos Neto observed.

The Central Bank president further explained that the inflow of dollars could be amplified by setting a price and establishing the credibility associated with that price.

“One can set a very low price, but if there’s no trust in its credibility, it won’t attract the needed funds,” he stated.

This implies that investors, especially from abroad, might be reluctant to invest in Argentina, potentially deepening the country’s economic crisis.

Campos Neto noted that smaller nations often find it easier to undergo such transitions.

When asked if Argentina could replicate Brazil’s ‘Plano Real’ from the ’90s, he suggested that Argentines would need a reliable anchor for a new currency.

Economists aligned with Milei believe that the U.S. dollar should serve as this anchor rather than a newly introduced Argentine currency.

Argentina’s annual inflation rate soared to 115.6% in June, the highest since August 1991.

This week, Argentina’s Central Bank increased its base interest rate by 21 percentage points, from 97% to 118%.

With information from Poder360