Dollarization: Milei’s bomb plan
How can it affect the living conditions of working people? Economy column of El Círculo Rojo, a program of La Izquierda Diario on Radio Con Vos, 89.9. In text and video.
- Dollarization is one of the main topics of debate on the public agenda that was installed by Javier Milei.
- It is clear that dollarization sounds attractive because it is sold with a lot of marketing.
- Milei says that with dollarization the economy will stabilize, inflation will end, wages will improve and the country will develop. It is a giant lie like Aconcagua.
- In reality, dollarization is a bomb plan. Bomb for whom? Fundamentally, for wage earners. Let’s see why.
- In the first place, there is a key “technical” question in dollarization, in the replacement of pesos in circulation and the liabilities of the Central Bank with dollars, and which is synthesized in the following question: At what exchange rate do they dollarize?
- Currently the wholesale exchange rate (which we can use as a reference) is quoted at approximately $200 ($202.52 on Thursday 3/16).
- Depending on the assets and liabilities of the Central Bank, among economists there are those who say that dollarization could be done at $400. But there are also those who say that it could reach $1000, or even more. It would be a huge devaluation, which is not ruled out at all because there are few dollars available at the Central Bank and many pesos and liabilities of the monetary entity.
- Milei pointed out in an interview with Alejandro Fantino that the exchange rate that should be used for dollarization is the one that defines the “market”: that we could say that it is currently the Cash with Settlement that is at 400 ($402.06 on Thursday 16 /3).
- Let’s take that value for granted: the price of the official dollar would go from $200 to $400, which is the floor it would reach with a devaluation.
- How does it affect salary? Take, for example, a salary of $200,000. With the current official exchange rate, the salary is equivalent to US$1,000. But with a new exchange rate of $400, the salary would drop by half: to $500.
- Or can anyone believe that employers will become so kind to continue paying a salary of US$1,000 when dollarization cuts it in half?
- But if the exchange rate gets out of control in the dollarization process and goes to $1,000 or more, as some economists say, the salary measured in dollars would drop from the current US$1,000 to US$200.
- Let’s look at other aspects. How much will we pay in dollars for electricity, gas, water and transportation in a dollarized economy? I’m sure much more than now.
- Milei misleads everyone who has seen the purchasing power of her income deteriorate in recent years by saying that with dollarization she has a magic bullet to end inflation.
- What it does not say is that dollarization would have as its first act a terrible devaluation of wages measured in dollars. There would be salaries in dollars, yes, but the dollars we will receive for salaries would be very little. And, therefore, they will be able to buy fewer goods and services.
- Let’s look at another aspect: What happens with a small saver who has, for example, $1 million in a fixed term? Today it is equivalent to US$5,000 at the official exchange rate. With a dollar at $400 they would be equivalent to US$2,500. Or with the dollar at $1,000 they would melt to be only US$1,000.
- Another rhetorical question. Does anyone believe that the banks will become so generous that they will dollarize the savings with the most favorable exchange rate for the saver?
- Let’s look at the other side of the banking system. At what exchange rate will they want to dollarize our debts for personal loans or credit cards? Can you imagine paying the card in dollars with a dollar in $1,000?
- Can anyone trust that the bankers are going to allow our debts to be liquidated favoring the debtor?
- These are important questions because Argentina has a long history of confiscating small savers: Bonex plan, corralito, corralón and asymmetric pesification.
- The examples mentioned are just a sample of the gigantic change in relative prices that a devaluation prior to dollarization would imply.
- But there is much more: the public debt in pesos of the State converted to dollars would make that fraudulent mortgage more unbearably burdensome, through which the international financial system and the IMF have enormous influence over the Argentine economy.
- One, as the left does, can be very critical of Argentine industry and the industrial bourgeoisie. But there is no doubt that dollarization, instead of strengthening the industry, would end up reducing it to its minimum expression with the consequence of a series of layoffs. That is, large-scale unemployment.
- Milei says that with dollarization the seigniorage of the Central Bank of the Argentine Republic ends (something like a tax for the use of money issued by the government, which has a monopoly on the issuance of local currency).
- What it doesn’t say is that dollarization actually hands over seigniorage to the US Federal Reserve. It is the dream of US imperialism come true: to advance the influence of the dollar as an international currency.
- Whichever way you look at it, Milei’s dollarization plan is a bomb plan: more precisely, an atomic bomb against the living conditions of the working majority.
Economy / National Economy / Javier Milei / The Red Circle / Dollarization