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ECONOMY | 23-05-2024 01:31

Argentina President Javier Milei lays out blueprint toward dollarisation

Milei says that after clearing the Central Bank’s balance sheet, Argentina would move toward a free competition of currencies, which means the peso and US dollar would both become legal tender.

President Javier Milei reaffirmed his campaign promise to dollarise Argentina in the clearest articulation yet of his government’s economic blueprint.

Milei said that after clearing the Central Bank’s balance sheet by paying down its local liabilities and reforming the financial system, Argentina would move toward a free competition of currencies, which means the peso and the US dollar would both become legal tender. The peso, at that point, would be set at a “flexible” exchange rate.

The Central Bank would then stop printing pesos, allowing the dollar — which he expects will become the dominant currency — to replace it. The monetary authority holds a tight grip on the peso, only allowing it to devalue two percent a month despite monthly inflation four times that level — a crawling peg the government said it intends to hold.

“The peso will become like a museum piece and when it becomes very rare, what do you think we will do?” Milei said in a keynote speech at a business event in Buenos Aires Tuesday evening. “We will dollarise and that way the peso will disappear.”

Since taking office December 10 on the promise to crush triple-digit annual inflation and dollarise the economy, Milei has moved swiftly to shrink the Central Bank’s liabilities with the end goal of shuttering the monetary authority. He cut borrowing rates six times already, down to 40 percent last week from 133 percent at the start of his term.

Milei’s economic team, led by Minister Luis Caputo, has moved to make Treasury notes more attractive than Central Bank debt to clear away the monetary authority’s ballooning obligations. With the successive rate cuts, one-third of the debt held in one-day notes known as “pases” in the Central Bank migrated toward the treasury, Milei said Tuesday. Once all the debt is cleared, capital controls will be removed and the currencies will compete.

Milei said he could not put a date on the lifting of capital controls because that would be determined by the market. In a speech at the same conference before Milei spoke, Caputo said it was “inappropriate” to lift controls now.

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by Manuela Tobias, Bloomberg

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