Argentina's Radical Plan to End Inflation, Explained
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- čas přidán 14. 05. 2024
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SOURCES:
I've linked my sources in the blog that goes along with this video. Links are in the text.
www.moneymacro.rocks/blog
MAIN SOURCES MENTIONED IN VIDEO:
- Emilio Ocampo: dolarizacionargentina.substac...
- Steva Hanke: www.nationalreview.com/2023/1...
- John Cochrane: johnhcochrane.blogspot.com/20...
- www.sciencedirect.com/science...
Timestamps:
0:00 - introduction
1:28 - the problem
3:12 - the case for Dollarization
10:35 - Incogni
12:12 - the case against Dollarization
17:08 - is Dollarization the way?
Attribution:
- I used some clips from Milei's official CZcams channel showing the people waving flags
Narrated and produced by Dr. Joeri Schasfoort
Edited by Christopher Adewole
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Its like the old saying. 'Fool me once with hyperinflation, shame on you, fool me 17 times... Why am I even holding your sh!t paper at all !' Fiat depends on confidence, most of all, and if there is none, then something must change. What they should have done was HyperBitcoinize, since then they wouldn't depend on the US not printing, because that is silly, and they would have a hard money that will never hyperinflate again. They can NEVER go back to the peso, because they clearly can't be trusted with a moneyprinter, that is a proven fact.
Professor Schasfoort, I'm trying to understand economist Hanke's retort to your reason #4, excerpted below. Is he saying that, when all those US $'s hidden in mattresses flow back into the Argentinian economy, everyday commerce will gradually whittle the exchange value of the entire peso money supply currently in circulation down to nothing? Please elaborate this point, so I can understand. Thanks.
@16:40 The Problems with Dollarization: 4. Not enough dollars
The Spain-Greece-Italy examples are misleading, since they DO HAVE a central bank and their own currency. It's like saying smaller usamerican states are "dollarized" just because they don't have a currency of their own and were forced to adopt a "foreign" one. Of course, smaller territories will always have less leverage over central bank governance and decision-making, but it's still theirs too.
@@sovo1212 no it's not, US states are indeed "dollarized" in that they can't create the currency they use, just like me or you, they can only spend what the accumulate or borrow. Only the federal government can "go into the computer system and markup the accounts" as Ben Bernanke put it. It really is as simple as, it says "Federal Reserve Note" on the physical bills.
video related czcams.com/video/hiCs_YHlKSI/video.html
Argentina certainly needs a radical economic shift, but I'd much rather observe this experiment from a safe distance.
exactly my thoughts
Buy popcorn.
Plenty of economies are doing radical economic experiments - including the US, Japan and China.
Which is why in recent years, we flip flop between insane credit excess to breakneck inflation.
In the end, this “experiment” will make countless people suffer… There was even a news program in Argentina suggesting that “you should skip a meal and eat better a night”.
@xunjin8897 Just like Communism, someone else will try to pull a stunt like this because "The others hadn't done it right".
When comparing the economy of dollarized countries with others, there is a high risk of selection bias, as countries that decide to dollarize will generally do so because they have existing economic problems.
Like testing the efficiency of a cancer drug by comparing the life spans of its users with those of average, healthy individuals.
Edit: of course, the authors of the cited study were certainly aware of this bias, but it might not be possible to control for it.
but there's counter examples of economies that were poor and adopted a peg to the US and were very successful with it Japan, Korea, China, etc.
Great point.
I see your point but on the other hand, looking at countries that have tried it is really the only thing we can do for prediction. I mean if we look at this biased selection a lot of those countries were probably doing similarly badly to Argentina, as you mentioned lots of them dollarize because of problems. So it would make sense that Argentina would face similar problems to them
They just replace inflation by borowing money,
@@uncreativename9936 true, those countries were poor, but most didn't have the specific problem with very high inflation that caused others to dollarize.
I guess many Argentinians have no hope that future politicians will ever act responsibly and restrain their ability to have the money printer go brrr to solve their political problems, and that they therefore need to be permanently deprived of that privilege.
Agree, the currency peg worked to reduce inflation but was removed later, in my opinion this clearly shows the incopetence of the argentinian state and it's corruption.
Probaly the corrupts like high inflation.
Exactly
While the Peronists factions exist, there will be inflation and bad economic policies. You can introduce as many currency pegs and currency boards you want, because as soon as the peronists go back to power (which they will), the peg is gone and inflation is back on the menu.
That's exactly the case
I'm quite surprissed that Mexico was able to overcome the inflation issue without dolarization and with a very corrupt government. I'm not quite sure, but my guess is that it was because IMF conditioned the loans to have at least some economic policies in place (like having a central bank independent from the government).
...and knowing that the government needs debt to stay afloat, then it's easier for the policitians to stay somewhat in the course rather than breaking the deals.
In many latin and mediterranean countries the problem is exactly that we cannot trust our politicians to manage the currency responsibly. In that sense, giving up control to a germany is kind of like giving your phone to a friend so you don't try anything silly when you're drunk or something like that. Not to say that I'm convinced dollarization is the best course of action, just that I totally get the sentiment.
This might kill the usd too though, fed can barely keep the politics out and congress will legleslate as if Argentina is a us commonwealth. If Argentina swings to using rmb without proper coordination us will be like Argentina too.
well at least germany is arguably interested in a common goal inside the EU. The U.S is not awfully interested in Latin America beyond being a sphere of influence
@@Dingish Argentina’s economy is less than 2% of US GDP. If Argentina dropped their peg is would be like a drop in the ocean for the US
Yup, it doesn't matter the economic policy as long as there is corrupt humans involved
I don't think it's fair to compare dollarized economies to non-dollarized economies, the reason they dollarize is usually because they have severe issues. They should be compared to themselves in the past, to see if they do better after dollarizing, not if they're suddenly on par with countries that never had the issues that caused them to dollarize in the first place. Now maybe dollarizing doesn't make them grow more than they did before, but if so that's what should be used to say that it doesn't help growth, not showing that they do worse than other countries.
This.
Countries in the EU did not dollarise because of the problems they had and yet the periphery did end up with slower growth and the problems caused by the financial crisis in 2008 cost dearly to many of those. If one thinks that was only due to Spain, Italy and Greece having higher inflation rates before joining the euro than the rest of Eurozone, have a look at Ireland.
@@yuridavy ok true one large contingent of countries which dollarized did it for a different reason, but still just about every non-EU country to ever dollarize did it to fix a problem, usually a big one, meaning that the set of countries which have dollarized preselects countries with major economic issues
You also can't compare Greece with Sweden for example. The Swedes are better organized, harder working and less corrupt in general.
Yes. Comparing the stagnant growth in Greece following the 2008 financial crisis against Germany here is attributing causation to Dollarization rather than the fact that the govt went bankrupt and received a stay of execution from the European Central Bank conditioned on Austerity policies. Switching to the Euro was likely irrelevant.
Great video. From this point of view dollarization seems more like a desperate scream of voters against irresponsible politicians. Giving up your own currency is a really radical move, something that you only do when you're desperate.
Never going to happen ! 😂 They have no reserves like Ecuador or El Salvador
Mental-illness-milei asking gore more inflation causing Loans from Communists China 😂
Dollarization is overwhelmingly unpopular tho, it's not the reason he was voted, and even hard core milei voters dismissed dollarization outright bc it wouldnt be possible to get through congress
There is also something worrying about that. People putting their hopes on some new radical policy, where it is clear that there are no policy panacea’s: it’s still about what you make of it. However by eliminating inflation, jt may clarify to people what the actual problem of the economy is, and maybe give voters a few less reasons to blame external actors for their economic woes.
Afuera!
@@AgusSimoncelli then disband congress
Some economists advocate for the idea of a currency board after the local currency has been severely battered, meaning it would be the last option. For a currency board to be effective, it needs to meet certain prerequisites such as having public accounts in good condition (fiscal surplus). Moreover, the currency board is a temporary measure and cannot be a permanent solution.
In the case of Argentina in the 1990s, they did not meet these conditions. From my perspective, it wasn't a problem with the currency board itself, but rather the inappropriate conditions under which it was implemented. Just to give you an idea, Argentina has a very poor history of accumulating fiscal deficits. In the last 100 years, there have been fiscal surpluses in only 7 years. I believe that if they can manage public accounts more healthily and apply the currency board for a certain period, it could be a good measure
I believe you are correct, but that you point out the problem. Peronism is basically vote-buying on a grand scale. If they could manage the public accounts, they would be Peronists.
Bulgaria is on a currency board for over 20 years - it's stable and effective
Croatia before the adoption of Euro had a de facto currency board since 1994. Bosnia has a currency board since 1995
IMHO, currency boards absolutely can work. In a way, the Fed is a currency board. But the board *must* be independent, and insulated from the politicians. That failed in Argentina in the past.@@luka832
Countries without a large trade surplus almost always have a government deficit. The private sector will never go into a deficit for very long before things fall apart so if you are an importer then the government can't run a surplus
I arrived in Sicily in '97 and left Naples in '06. My conclusion has been that adoption of the Euro "averaged" the Italian economy between the "Po Valley" and the "Two Sicily's". French investments in Sicily were particularly noticeable. Does Argentina have a "northern neighbor" anxious to invest? Is the world economy in a growth phase? Does Argentina have a north/south or rich/poor divide to equalize where investments might promise a good return? While being skeptical, I think that if your house is on fire it's better to call for the fire trucks - as opposed to breaking out your hose, again.
It's East West in Argentina with South the most weak in economy
There is, but right wing media tries to whitewash Argentina. Not all Argentinas look like Italians or Germans as the right wing media tries to show Argentina. The reason for this mess was the pro-Anglo-Zionist politicians. Milei did not study history and is returning to the root cause of the problem.
Argentina has mineral deposits in the Andes Mountains that could be exploited. Opening the economy could bring more investment too. But the culture has to be entreprenurial and I'm not sure about that in Argentina.
@@jackbailey7037 Hopefully with decades of Peronism they have learned. Chile tried Allende-ism and seems to have taken the lessons to heart. Argentina's chances are better than even - would be my guess. (My father-in-law was a iron mine manager, in Chile - before Allende).
@@marvinegreen Patrick Boyle has made a video about the Argentina situation a while ago. It’s much more complete than this since it gives a summary of the past political and economic events that led to the current situation and it’s not just focused on the dollarization but considers the wider economy.
I think a key arguement being made for dollarisation (over currency boards or pegs) is that the history of Argentina means that markets will distrust the ability of the governemnt to maintain the peg, leading to massive speculative attacks on the peg, as occured in the late 90s.
No that argument is particularly made for currency boards ..
@none2912 currency boards can also be subject to speculative attacks (eg. Hong Kong in the 90s, which while ultimately unsuccessful did drive up interest rates for a time).
@@colinburns8854 that's my point. Speculative attacks work well against pegs, such as currency boards
In my view the States of the USA are also dollarized. The economies of the individual states differ and have different speeds and standard of living.. They have different income tax, sales tax, minimum wages, corporate tax, etc... etc... Yet they have one currency and a central bank that sets their interest rate. Yet we tend to look at the USA as a whole and the EU states as being "linked" into the euro. This amazes me.
I would love a video that compares the USA to where we are at in the eurozone and what steps need to be taken to get at the level of the USA when it comes to the currency and economic cohesion.
Countries would have to be prevented from leaving, everyone (95+%) would have to speak the same language, and the ability for countries to veto decisions made at the federal level would have to be removed. There are a couple of other things, of course, but those are the main ones.
People may underestimate just how much these things contribute to economic and social cohesion (though they are, of course, not cure-alls)
Most importantly, the European Union needs a central fiscal authority to go along with their central currency authority
@personzorz they need to accept the inevitable and federalize Europe. You can't go it alone anymore. If it's going to be a multipolar world, you want to be a great power, not in someone's sphere of influence.
I agree with your perspective, and it is an interesting thought experiment. When one stretches that to Argentina, one realizes the issues. Argentina's problems are political, not due to production. Costs are shifted or hidden, profits confiscated, due to the central government. Dollarization would make that much more transparent. I doubt if the politically well connected would like it.
They are literally 50 different countries. They just bend over to the same tyrants
Been so excited for you to make this video,
Not having actually read the sources yet, but I suspect there might be a hidden "trap" in the anti-dollarization studies in that they seem to compare all dollarized economies to all non-dollarized economies, instead of just the ones whose economic crises were severe enough to discuss it, like Bolivia and Venezuela; there's an intrinsic unfairness of comparing Ecuador to Japan or the United States, as becoming like either was never in the cards.
It's not unfair to compare Ecuador to Japan, they literally were nuked twice during WWII, it's not like their economy was in great shape at the end of the war and the rebuilt under a peg to the US dollar, not a dollarized system.
@uncreativename9936
Why was Japan nuked?
Because it was a major power (large population + powerful industrial base) with the capacity to be a major player in the world. Just because it lost the war did not mean it lost all its human capital. Remember Japan industrialized and became a global power only after 1868. Ecuador is not and has never been comparable to Japan.
@@uncreativename9936 Misuse of commas.
@@developmentalist And nuclear bombs destroy both the industrial base and the human capital.
@danielsan901998
No they didn't.
Japan is much bigger than two cities. Its population in 1940 was 73 million, and total non-combatant deaths is estimated to range from 500,000 to 1 million. With total casualties between 2.5 to 3 million. That is less than 5% dead by the war's end, and that's not including growth during the war. So you are wrong.
Dollarization might be the most extreme response for Argentina, but NOTHING was going to improve until Milei was elected. A condition of slower economic growth looks infinitely better than the previous path where the entire country was headed into poverty. I think it would be easy to underestimate the malicious incompetence of previous government administrations. Without full dollarization, all it takes is one moment of political weakness and they are right back where they were for the past ten years.
Exactly
Working with BRICS and having the ability to pay off IMF debt in yuan would’ve worked.
We won’t know now because WEF meat puppet Milei killed all of that for a dollarization plan that failed in the past.
the purpose of dollarization derives from the fact that the government legitimizes its existence by buying the votes of all those citizens who do not produce wealth.
the public administration of each state has a necessary cost to maintain a certain quality of service. excellent public administration must aim to reduce costs while maintaining quality. the problem arises when you have hired too many people and have to fire them. if you were a normal company you fire your employees and hire more competent ones or replace them with a machine; the workers don't have much to protest, they are fired. in the case of a government however, if you fire your workers they will not vote for you in the next elections, just look at the previous reformist government.
the same argument applies to all those inefficient companies that should naturally fail and be replaced by more efficient ones, but which are kept in existence with subsidies, effectively destroying wealth and impeding economic growth.
the solution barely prevents the government from continuing this vicious cycle.
or the mentality of the Argentines changes, and they have to understand it by force.
I am writing from Italy, a country with similar problems which, if it had not been for the euro and the European Union, would have already gone in an Argentine direction
LOL
And his first act is to ditch and totally surrender your economic sovereignty to a irrespensand erratic country like usa? LOL. Instead of currency board AND improve the political system and educate your voters to vote intelligently and responsible instead of tribally?
I found the video to be fair and accurate for the most part, which is incredibly rare this days, especially with highly polarized subjects/figures.
A few remarks:
- The proposal for Argentina gets called Dollarization, but that's not really painting the whole picture. The idea is to leave the economy as a "free currency" scheme, where any currency can be used for any given contract/exchange. Later on, they would kill the peso.
- The economy is de facto dollarized now and it has been for a while, only very small purchases are made with pesos or even quoted in pesos, anything more expensive than a car gets a USD price tag.
- I don't think a peg is completely off the table (Milei spoke about it several years ago), but it would require some hard limits to emission and policies. We probably won't see that in 4-8 years.
- A lot of what Milei does and says is marketing, the dude is far from insane, some of the claims are borderline oxymoron presented as genuine ideas because that works for getting people's attention.
Question: if Italy, Spain, and Greece are dollarized because they adopted the euro, can that not be said of Germany, Ireland, the Netherlands, and France as well?
Right idea.
Or of California, New York, Florida, and South Dakota since they adopted the US dollar and neither can solely set monetary policy? Obviously, this definition of dollarization is flawed!
Good question. What it means is you are giving up the ability to respond to local (state, national) economic shifts via monetary policy. In that sense everyone is dollarised to an extent yes
to some degree. its different when you are rich though
@@TheSwedishHistorian agreed, but by the given definition of dollarisation that would still apply - unless the definition only applies to countries that are not extremely wealthy
I've been looking forward to this video. Thanks!
I think the comparison to Spain, Greece and Italy, combined with the warnings that their adoption of the euro caused big volatility in the shape of the Euro Crisis makes little sense here.
Risk premia, both for sovereign and private borrowing, were low because investors (rightly) assumed that the northern countries will bail out the southern countries in case of trouble. But nobody is there to bail out Argentina.
Exactly. Argentina has very adverse laws for foreign investors and taking any money out is even harder.
Good point. In addition to this, eurozone members send governors to the ECB where they set monetary policy, e.g. interest rates. The euro is as "foreign" to Italy as the US dollar is "foreign" to California!
Nobody bailed-out Italy.
@@panter82 correct, Italy was not subject to an investor panic as Greece, Portugal an Spain were. Bond spreads for the latter too were much higher. And frankly, nobody could have rescued Italy, because the volume of outstanding bonds is just too great.
@@maximilianludwig5824 You're incorrect about Italy. The ECB could have simply bought up Italian bonds and _nothing_ would have happened. Mario Draghi said it: "The ECB will never run out of money." There you have it. The reason for not doing that was the hawkish stance of German politicians, as they wrongly thought the ECB buying up Italy's debt would be a "burden" on "German tax payers". This, of course, is complete horse shit. Nobody would have had any disadvantage if the ECB buys up member state's bonds. The ECB, as the money creator, can _never_ run out of money. 💁♂
4:29 except that these countries have a lot of say in nominating the ECB's executive board through their head of state in the European council , are directly represented by their central bank in the governing council.
You did not mention the initial demand shock on local economies as part of a dollarization process, which can be extremely harsh for all citizens, especially the poor.
I am not a subject expert, but I can tell you that in Ecuador, people lost a huge amount of their savings when dollarization happened as the official conversion rate was fixed according to the State's currency reserves.
As everyone was trying to get rid of their sucres (the former Ecuadorean currency for USD), the sucre kept rapidly dropping value to the USD, and the adopted official conversion rate sucre/USD was extremely high.
Savings in sucres were blocked in commercial banks, so people couldn't withdraw their money to exchange it quick in USD (it would have caused a bank run and a crash of the national banking system).
As a result, millions of Ecuadoreans unable to exchange their savings in sucres basically lost a very large part of their life savings, which led to a massive spike in poverty, suicide rates and, emigration.
These can be important short-term consequences of dollarization.
I agree that, on its own, dollarisation is not a silver bullet for growth. The Eurozone is a great example of that. Pro-growth reforms must be part of the equation as well, which I believe is what Milei is planning as well
Dollarization does not equal growth in any way. But the Dollar is indisputably the most stable currency in the world and business interest, investment and success relies on a predictable, stable environment.
@@tonysu8860Not to mention a physically safe one, and anarchy from hyperinflation would not be conducive to the health of those industries
Stop lying, Argentina will fall hard and will become just a vassal of the US
@@tonysu8860 no, that is demonstrably false. The Dollar is definitely not the most stable currency 😂😂😂
I guess Milei’s policies are more austerity, so no growth
Yuri you make complicated economic analyses easy to understand and very accessible to the average person. Your videos are a gift to humanity, thank you for what you do!
I think the unfortunate thing with these studies is that we don't have "perfect" control cases. We have countries that dollarized, and other countries which didn't need to dollarize. It's possible that stable, but below average growth might be preferable to whatever might have happened otherwise.
Correct. The dollarized economies should have ideally been compared to the counterfactual. Which is impossible in economics, of course...
i've been waiting for this video. thanks for your analysis
My pleasure!
I was really looking for this video. Thank you!
Great video! You make me want to study Economics. One thing I saw that was interesting from your graphs was that growth appeared to slow or inflation increased after the 2009 crisis and Covid.
1:35 you missed the mark by a mile. You’re using the gdp per capita based on the official exchange rate. If you measure it at market rate gdp per capita hasn’t grown in since 2011. Also, if you measure median income with this exchange rate, you’ll find that it’s around 300 usd per month. Finally, 40%+ of poverty is another key indicator that shows the same trend
I was hoping to get your take on this subject. Really well thought out video.
Great video! I like that you actually go in depth and get more technical about the dollarization policy, other videos haven't done this.
Flawed though.
Does not once mention the root of Argentinian inflation which likely is insufficient productivity relative to the People's demands and expectations.
Milei is more of a classical economic liberal than a doctrinaire “libertarian” in the US context (what we might call “Cato Institute Types“).
LMAO Milei is a WEF meat puppet who will happily surrender all sovereignty to the U.S. Deep State
Can you tell me the difference between libertarians and Classical liberals cause they look the same to me.
IMHO classic liberals are concerned with economic systems (namely, that “the market rules”, and the government doesn’t “pick winners and losers,” etc.) only whereas big-L “Libertarians” also make issues out of things like civil liberties, non-intrusive government (outside of the economic sphere), minacharism, etc. There’s overlap but they’re not necessarily the same. A classic economic liberal could support a conservative (or leftist) social agenda and, in theory, could be very pro-law enforcement, or support an aggressive, hawkish, interventionist foreign policy, whereas doctrinaire libertarians would probably not.@@tvictor7351
He is more of a clown who got brainwashed by US propaganda. Milei is stuck in an era where US dollar was the supreme authority, not it is not anymore. He forgot to foresee that US is printing money profusely and US has its own inflation problems. It will get worse as US continues to print trillions to feed Ukraine and Israel.
@@tvictor7351 There is a methodological approach difference between the two. So liberalism is more focused on the nation and its needs (for example, the title of Adam Smith's book is "Wealth of Nations") and Austrians, which Milei is by most metrics in my opinion but is not actually in this particular one, is more individualist and focuses more on the incentives of individuals (Mises' book is "Human Action"). So one thing that they disagree because of this difference is what the interest rate should be. Liberalists view it as something countries can control to advance economic growth, like Milton Friedman who thinks it should almost always be close to 0. While Austrians think that it is set by the market like everything else. They see interest rates as "the price of money", dependent on supply and demand like anything else, so when people save money (human action), there is a lot of money to be loaned out so interest rates should naturally go down, and when people are spending, theres less money to be loaned out so rates go up.
There are plenty of other differences, this one is just the main one in my opinion
In my view, Milei reaches basically all the same conclusions as other Austrians, but during his speeches and interviews he tends to speak on the nation, which is why some people don't view him as an Austrian economist. But given that, I am comfortable saying he is an Austrian, as I think the way he speaks is just a matter of how to communicate with people without an Austrian background rather than his actual beliefs. One of Milei's influence is Jesus Huerta de Soto, a very prominent contemporary Austrian economist from Spain, that he mentions a lot in his speeches, evidence to back up my opinion on him
All that being said, they do end up agreeing a lot because nowadays countries for the most part, especially the US, just keep increasing in size. And since these two views are mostly against interventionism and pro free market, you end up seeing a lot of overlap in their discourse today. Which is why its hard to distiguish them without knowing a lot about them
Excellent video. I think full dollarization is radical and I normally favor more moderate approaches to this kinds of problems (not that I have any say in this lol).
Pegging to the dollar is too difficult once the situation gets as dire as Argentina's economically. For example, we didn't see Zimbabwe peg to the dollar, but rather go to dollarization after the hyperinflation period they experienced under the Mugabe years.
I would usually agree tbh but in the case of Argentina the way people view money has become so warped and dysfunctional along with the constant populist money spenders that get into power there just makes them too incompetent to manage their own money unfortunately but I understand the reservation about adopting follsrisation, its not for the squeamish
I love that you don't have annoying background music. Your content is really interesting. Greetings from Italy 🇮🇹
Very informative. As always
Bulgaria is a pretty decent example of both the positive and the negative of a currency board. The positive is that you significantly reduce the harm "here today, gone tomorrow" politicians can cause (i.e. excessive populism and short-termism) but on the negative you essentially turn yourself into a colony with very limited self-determination or ability to counteract global trends. In addition, no debt is equal to no growth in a global economy where everyone else is using cheap capital to get rich and rapidly develop.
so what exaclty are the negative effects Buglaria experienced?
I second that. The short-term stability comes at the expense of generating equity for foreign capital owners, who also lobby the legislature in your country. We quite literally have no members of parliament that cannot be bought by either Western or Kremlin lobbyists
@@none2912 Lack of growth mainly. By taking away the ability to make bad decisions you also take away the ability to make good decisions. Your growth is essentially an index to whatever you are pegged.
So what's the lessor of the 2? What's more important stability or growth?
I'm not sure Bulgaria is the example you are looking for then. Bulgaria actually has had pretty reasonable growth over the last decade, especially if you take in to account that part of the population moved towards the wealthier countries as well. But for instance the nominal GDP per capita in Bulgaria more then doubled, far quicker then any of the more developed economic areas in the EU.
Bulgaria started at a really low income though, so even though it has had such doublings, even now it's still a fair bit behind. But if it maintains this pace then in another two decades it should be getting much closer to the developed economies.
But the EU isn't really an entirely standard case anyway, as countries that are less well off get development aid from the EU. Basically some redistribution of wealth to poorer areas. And the EU since the last big currency crisis has made monetary reforms to make a similar debt crisis far less likely from happening. As can be seen in the Corona crisis period where no debt issues happened in the EU at all. So it's kind of being reducing some of the negative potential from dollarizing ones economy. Unsurprising in a sense as all the states in the EU get to vote on matters and those getting the drawbacks from the situation would want those addressed.
Thanks for covering this topic. We have a similar problem here in Bulgaria. We're in the process of adopting the Euro but many people are reluctant to the idea and some politicians are outright against it. Although, most people seem to be in favor of adopting the Euro. Our situation is a little bit different than the one in Argentina because the Bulgarian Lev has been in a currency board with the Euro for around 15 years after a few months of hyperinflation caused by a banking crisis in 1996. Do you consider making a similar video about Bulgaria's dollarization of the Euro? It would be interesting to hear your opinion on the three options: adopting the Euro, keeping the currency board or maybe abolishing the currency board and returning to a self-managed monetary policy.
if you have competent enough government - really doesn't matter adopting Euro or not. Look at Czechia and Slovakia, one of them switched to Euro, another - keep their Krona - and both doing similar actually.
@@ivani3237 The main benefits of adopting the Euro I see are that we won't have to convert currency when trading with other european nations (both businesses and individuals) and that it would be easier for other europeans to spend money in Bulgaria boosting the economy. Another benefit (although I'm not sure how impactful it is) is that Bulgaria will get more involved in making decisions about the monetary and fiscal policy in the Eurozone.
@@zamf Yes ... We in Czech Republic are facing the same problem, although more than 3/4 of Czech citizens are against adopting euro because many politicians were continuously slandering euro. Our new president have risen this topic again on the new years eve.
The problem is that the board was eliminated the last time, and it wasn't immediately reintroduced once inflation started to seriously pick up.
You're asking investors to have a lot of faith in an economy that's clearly stuck in the middle income trap and is known to have overprinted its way out of trouble before.
You can argue that a currency board in conjunction with a massive reform of the process through which money printing can even be considered is the best approach.
I doubt a board will work this time given the jokes being made on behalf of the AR economy. There are other places to invest, places that don't have a bad reputation, places that are likely to experience solid growth for years to come.
Funnily enough if the AR economy would crash to the point of poverty a currency board would actually work since it would allow investors to at least consider the country as a promissing opportunity. Maybe even promissing enough to leave the investment going even after the next time the board is removed.
true. fool me twice...
Privatizing the big state businesses by selling them to his manager friends will reflect Russia in the 90s.
Great job! Really fine work explaining a complicated system. Milei might think that the Argentine system is too creaky to manage their own currency. Given the insane inflation as a top concern, this may have left dollarization as the only realistic alternative.
I wonder how much of Argentina's situation would be comparable to Turkey/Turkiye. It might be interesting to see how comparable they are and how each's approach differs and the results.
One difference when talking about Spain, Italy and Greece is that they did still have a central bank (the ECB) over which they had some influence. Their politicians had reason to believe that even if they spent irresponsibly France and Germany would lean on the ECB to be accommodating rather than risk having them leave the currency union. Argentina's politicians, on the other hand, would have no reason to expect any help at all from the US Fed so at least in theory they would be more highly incentivized to reign in spending than the Europeans.
That could be. Although, I personally don't find it super convincing, given that especially Greece really didn't get off lightly at all.
@@MoneyMacro Greece got several rounds of cheap loans to be paid back several decades later... What's that if not debt relief in disguise?
@@u.s.navy_pete4111 it is. But only on conditions that are similar to what an imf bailout looks like (harsh austerity in the middle of a crisis).
@@MoneyMacro Could you explain what exactly that austerity was? As I remember, the GFC in 2007/8 caused markets to check whether Southern European debt was sustainable. These countries took on huge debt load after joining the euro believing they could afford it because of the low interest. That turned out to be false.
And the eurozone crisis only started in 2012, that's 4 years where these Southern European countries had already run large deficits. And they continued to run large deficits for the rest of the decade. How is that austerity?
@@u.s.navy_pete4111 because gdp shrunk
Great content, thanks for the deep dive.
I knew you'd be against and was expecting a bad take, but it was actually a fair analysis! A few mentions:
- At 2:43 Milei speaks, you cut it JUST when it's saying "Dollarization" is just a process by which Pesos are destroyed. You then soon after said he'd replace the "national currency" with USD, that's false. He's proposing free market for monies, meaning no imposed legal tender. It's unlike every other "Dollarization". You kind of clarified what you mean by calling "Dollarization" to what the European countries did, I guess. But it'd be nice if you made it more clear to viewers
- Is the country comparison at 9:30 fair? Uruguay is a great country, it's almost considered a tax haven
- On the European countries, even Germany that was good before "dollarization" shows stagnation in that period. How about the whole period wasn't great overall?
- About 10:00, correlation doesn't mean causation. Countries that dollarize, tend to do it for a reason, they have problems of their own. If you are an awesome country with an awesome currency, you probably don't dollarize
- I'd say most economists are against dollarization, because they believe if they'd be in charge, they'd be great at sailing the ship, the so-called "Fatal arrogance". It takes humility to be an expert on something, and still trust the free market, as an Austrian economist does
- 13:35 that seems simplistic. If USD flows out, the Pesos will be worth less and less anyway. The underlying problem is still there. Also most goods are imported and their prices are dollarized anyway
- 14:21 The US has its own currency, bailed out the banks in 2008 and (the real economy) has been very stagnated since then. Potentially following Japan's steps after their big crisis. Without a bailout, you get a much more painful crisis, but the excesses are purged much more rapidly and the country can grow again, rather than become a Zombie economy. Also the "bailout" is basically taking the middle-class' money and giving it to big corps, I'll pass. If you print instead, same deal but steal via inflation from savers and those with salaries
- 18:30 is a pipe dream. You need to understand the underlying problem is cultural. Populist rulers will eventually return to power, start overspending, break the peg, cut the Central bank's independence and use the currency to finance the fiscal deficit. It's not an actual scenario to consider
- 19:30 I think that's doesn't imply he's backtracking. Someone else got assigned to the Central bank, because Ocampo's role was to close it and that will take 1-2 years. Also FYI his Economy Minister, Caputo, devised an alternative plan for Dollarization and recently said that's still the end goal of all their measures
Nice video!
Such masterful responses!! Good read
-As you said in last phrase if central bank supression is the long term policy, then dollarization is defacto the thing that he proposes.
-Issues might be cultural, but they can be fixed with new laws forcing Central bank independency or a more Parlament aproach for our politic system
-Not all prices have a linear progression with USD. If that were the case, passthrough in prices where not even a topic in economics.
You made a great point.
Uruguay, Ecuador and Uruguay are relatively different.
El Salvador could have been, for example, compared to Honduras and Guatemala, very similar neighbours which still use their own currencies. I think that's a better comparison.
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I've been waiting for this video since you had that poll in your community section.
Yes!! The preference was clear :)
Always appreciate a thoughtful, well-reasoned view presented in a straightforward manner.
as a Greek, I really feel for Argentina. I'm 45. my generation had to pay for all the sins of the previous generation. we had to get rid of our corrupt economic mentality as a nation, got rid of the corrupt politicians and now we are doing better than before. I hope the same for Argentina!
What do you think about Cambodian weird dollarization?
Cambodia uses the dollar for most transactions above 5$ and the local currency for small transactions and instead of coinage.
Most transactions are below 5$ since the country is low income.
Rhe economic growth has been very good and low inflation.
What you described is already reality here. Property's, cars and many other expensive item are already bought and sold in dollars. We also already have an estimated 200 billions in hard US cash. We are defacto semi dolarize.
this is basically the nuclear option, deciding that your own country is so incompetant it can't be trusted with it's own finances. this just seems like a flash, drastic measure that won't address the corruption and economic problems that lead to the peso collapsing in the first place. dollarizing won't get rid of corrupt politicians, nor will it make the argentine economy produce more goods and services(which would lower the price, almost every hyper inflation comes from shortages).
Fantastic analysis as always!
I csn see in your expression that this video was a difficult one. Lots of data, guesswork, speculation. Great job man
Great video! You correctly mention that even when giving up monetary policy, politicians may (will?) still find ways to be fiscally irresponsible. Wouldn't this issue be exacerbated in Argentina? Since it's a federal state, I think that Buenos Aires authorities think that fiscal sustainability is not their problem, but instead the federal government's.
Fiscally responsible?
That's a matter of perspective when it's the people who demand a certain level standard of living when their society and economy doesn't support it. At that point critics should be asked what should be done. Either borrow and print money as fast as you can or act "fiscally responsible" and tell the people they won't be able to live as they want and get removed from office.
Bulgaria has the huge advantage of being part of EU. This means not only European funds, but stability and less risk for foreign investors. Foreign investors don't come in just because the currency is stable.
The EU ruins countries
I liked the objective perspective you took in this issue. Thank you very much!
It's not really dollarization because they will allow other currencies and cryptocurrencies to be used in Argentina. It's more like de-pesoation. This is similar to Panama.
Especially if you factor in how trustworthy and honest AMerican economists are (have been), I would caution Argentina to use dollarization as a tool yet be prepared to stand on its own quickly when it becomes apparent that feckery with the US dollar is affecting Argentina negatively. Much love and hope to Argentina and it’s people.
Thank you for your balanced approach. As a US citizen, I would caution Argentina on dollarization. You may just be trading the risks of local bad actors for the caprice of foreign (American bankers) bad actors.
I disagree.
Transparency is the name of the game and part of the reason why the Dollar is so trusted is that the data collection is extensive and mostly publicized. Whatever isn't public can usually be discerned through aggregation and analysis. And, it's not like Argentna won't be still considerably responsible for its own economy and affairs... The Argentinian financial institutions including the banking system will still be entirely in Argentina's control. Outside of currency policy, Argentina would completely stand on its own, make its own decisions without effect or influence from the US or anyone else.
@@tonysu8860 Without the ability to control interest rates and printing their own money, what is left for Argentina to control? There are even possible future scenarios where the US dollar plummits, and Argentina can do nothing about it.
@@tonysu8860 The US literally couped argentine in 1976, you really think they wouldn't play the "we will fuck your economy in one key stroke" card to interfere?
@@tonysu8860 "Transparency is the name of the game"
Why do you think banking is a transparent game?
It's, quite literally, the biggest reason people all over the world mistrusts them by default. And with just cause.
Not to mention Plan Condor, in which the US literally intervened into Argentina's democracy by financing and preparing the military for the coup.
@@jamilhneini1002I mean the alternative is just another military coup no? Looks like if the US wants to fuck with any American country they will anyways.
I really appreciate how fairly you present both sides of the argument
It's always good to have at least one or two youtubers that bring the issue back down to earth. Rather than sensationalizing and warping the topic into partisan banter. The amount of such content on youtube and the number of people that fall for it dashes any hope I may have developed for our collective future.
Congratulations on your video👏. About dollarisation I understand that the average economist doesn't endorse it. I recognise that dollarisation isn't the "first best". But foreigners need to know the level of populism in Argentina; when Peronists have been in government, they start issuing money, which creates inflation. This recipe has been repeated for decades, so I don't have any hope for Argentine politicians. We need to look for institutions that limit the discretion of politicians, like dollarisation.
In Greece the product prices increased alot while the salaries stayed the same with the switch to euro.Example 1 botle of water was costing 50 drachmes (15 cent) and when the prices changed to euro it was costing 50 cents (170 drachmes) this happened to all the products.
If your politicians are not corrupted you will be fine with the dollar if they are corrupted prepare for a massive crisis
Great video! I love that you presented the arguments for both and against dollarization.
Please make a video about whether countries (both major and minor) should pay off all their debts.
Italian here. Our inflation finally went under 2% a month ago c.a but life still sucks.
South American here, why does life "suck" in Italy?
I don't blame politicians for their faults. I blame the voters for putting their trust in untrustworthy people.
Knowing that, and that Argentina has a long history of hyperinflation, that gives me little hope Argentina can sort out its own economy. Its people are too eager to vote for politicians who make outrageous promises they can not keep without switching on the money presses.
I remember when Italy's Lira was in constant free fall with hyprinflation. They don't have that problem anymore being on the euro. Greece being put on the euro also was good for the country. Yes, they continued to overspend, but that was because the European central bank foolishly allowed them to borrow excessively. Eventually, Greece got put on a strict economic diet by the European Union, something that might not have happened if were not on the euro.
So Argentina being on the dollar will be good for the country.
Italy has never been in hyperinflation, some year of high inflations
@@panter82 Technically that's true, hyperinflation is defined as inflation over 50%, and Italy's highest inflation rate was in 1974 when it went to over 24%. But throughout the 1970s and most of the 1980s, Italy had many years where inflation was over 10-15%, and this severely eroded the value of the lira. I remember when we went on this bus tour through Europe that included Italy in 1988, and the exchange rate between the lira and dollar was huge (I looked it up - it was around 1300 lira to a dollar in 1988). It was wierd seeing the posted signs for things in the stores and restaurants marked in the tens of thousands of lira.
@@gandalfgreyhame3425 yes, but those were years with very high inflation in all Europe due to the energy crisis. UK and France too had very high inflation and the British Pound was in free fall. Germany is a basket case as they manage to keep inflation under control and a strong Deutsch Mark. However my point is that the situation of argentina is not comparable, with triple digit inflation and a pesos that went in 20 years from 1:1 with the US Dollar to the current 1000. 1000x devaluation. The Italian Lira went from 600 Lira for 1 USD post WWII to 1800 Lira for 1 USD at the end of 1980s, 3x devaluation.
@@gandalfgreyhame3425 Inflation was everywhere in the developed world around that time, but Italy also _wanted_ that inflation to support their export economy. Germany put a hard break on its economy in the 70s by hiking the interest rates dramatically.
Great topic to cover! Argentina is such an interesting country
Wow, you are really good at explaining things! I appreciate hearing both sides of an argument, and you present your own opinions with a good dose of intellectual modesty. A breath of fresh air. Just wanted to say kudos, from a random internet stranger.
A shift from hyper inflated currency to low inflation US$ would be an extreme shock treatment, in business failures and unemployment, with lost tax revenue. Thery would also have to borrow heavily to pay for the currency. They would have no influence over U.S Central bank, so policies would not suit it's needs.
I get his point but giving Argentina history, I think it makes more sense for dollarization. Yeah you’re losing flexibility, but you gain stability. Given their past that’s what they desperately lack. It would be like managing your own money. Yes, realistically it makes more sense for you to handle your own finance but if you lack the maturity, knowledge, etc. It makes more sense to give that responsibility to some else.
Getting that responsibility back is the question. If Argentina is unable to do that it will mean lower growth in the long term and it'll be more messy with Mileis an-cap free market tender proposal.
Thanks for the informative video...
Great video!
Hey Joeri, I’m curious if you could share some thoughts on the Euro given the research you did here. Do you think it was a mistake for Italy and Greece to adopt the Euro in principle, or do you just think that the implementation wasnt good enough?
I find it hard to believe that giving up your currency is always a bad idea. For instance, should individual states in the USA de-dollarize and adopt their own currency? Should individual municipalities do it?
Surely there’s some level where a shared currency is beneficial for all. I think one main difference with the Euro vs dollarization is that the EU members still have a say over EU fiscal policy, just not an absolute say, whereas Argentina has no say over US fiscal policy.
You are right. We must see how Greece and Itally would doing without the Euro. The Italian Lira always had a very high Inflation rate and high unemployment and both issues were overcome. Greece would be bankrupt without the Euro. Hyperinflation is much worse than just moderate growrh.
Great points!
The difference between the EU members and the US states is the degree to which there is a fiscal AND monetary union. You can manage the issues created by a monetary union a higher degree of fiscal union. The US states have massive transfer payments between them which dwarf the EUs transfer payments and make the US monetary union make much more sense
@@cthulhudreams7578 This is 100% correct! Unfortunately not many people recognize that.
Spain, Greece, and portugal adopted the Euro, but are also members of the European Union. So there was interest expressed in their continued viability by the EU. Argentina has no such assurances by the US.
Thanks for excellent content. Please make a video on Egyptian economy and the fall down of Egyptian pound. Thanks
Great video, thank you!
My main concern is that Argentina is so desperate to get rid of inflation once and for all that its willing to cash in its safeguards for future shocks. The culture and mindset, as well as the philosophy have been built on the current economic system For the better part of a century. To suddenly undo all of that within the span of few years seems just too big of a change to implement. Essentially, Argentina is bringing their old philosophy and mindset into a new economic system trying to get a different results but until the court changes, the outcome will remain the same.
nonsense. Life is becoming impossible when a loaf of bread costs your entire daily wage. Without getting inflation under control, a future is impossible.
I think that the inflation is a reflection of the bad economic policies of the government, and the huge debts and central control therein. Getting rid of inflation is actually the easy part. But what will happen is that people will suddenly find out that they really are poor, and they will demand the government "do something." Which is what Peronism is. So more bad policies will be initiated.@@dr.j5642
@@dr.j5642 You missed the whole point in exchange for getting inflation under control. They sacrifice so much more monetary autonomy in the ability to adjust to ongoing changes in the global financial market, and become less competitive as a result, a loaf of bread would be the least of your concerns, you couldn’t even afford to live in a house or or have a bed to sleep in at that point.
@@VinceroAlpha its the opposite. People are already at the point where they cant live in homes. Soon they will be starving, that is my point, one which you seem oblivious to. Why do you think the Argentinians voted this unlikely candidate into power? Things are desperate. No one cares an arm is going to be lost forever when that arm is on fire and causing an unbearable problem in the present.
I think you are right, they should use other ways, one that comes to mind is Mexican Central Bank, an independent institution that has kept inflation in control for years now. What it did is separate it from the goverment so that any change to monetary policies have to be delivered on expected outcomes not on how to do it, and the bank itselfs manages those.
Dollarization is just a short term measure to stop inflation, Milei has actually talked about opening a free currency market where you can use any coin you want. In the long run I could see Argentina starting a new coin and tying it to a mineral value, most likely lithium so it doesn't loose it's value in the first peronist goverment.
That's what many in the global south want to do. They are joining bricks partly for that reason, so how to you see Milei's stance re BRICS+?
Really enjoyed this video, and appreciate you trying to be as non biased as possible
I've been looking for a relatively unbiased economics channel for a while and I'm glad I found this one! I like the way you present both sides of the issue and discuss tradeoffs.
some of his sources are sus. "i'm not cherry picking" ... 'here look at these cherries'
I wish the best for Argentina and the rest of Latin America.
I don't think this is about accusing you of cherry picking but more about a tainted sample.
Dollarized economies are usually dollarized because they have a host of problems that created inflation, so comparing Italy to Germany for example is not really a good fit since Italy is consistently battling issues while Germany is not. Also, it is worth noting that not all issues Italy has come from the euro (in fact you can easily argue Italy could have far bigger issues if not for the euro given that they could fall into the problem is printing liras to cover budget deficits instead of borrowing)
With that said, dollarization is definitely a poisoned pill because it will stifle your growth potential. It is more about if you think it is the right poisoned pill for the country or not. I happen to believe it is the right one, coming from a country with similar (and worse) issues than Argentina, I sympathize with the notion that given enough time politicians will fuck the economy up if there's not a insurmountable barrier to stop them.
Edit: Also, speaking about Argentina only, while the growth potential of Argentina will certainly be lower with a dollar economy, we can also play devil's advocate here and make the convincing point that in a hundred years that growth potential didn't materialize and that implementing the dollar can even go a long way to solve the crisis of confidence the nation has, this is key for investors and can actually lead to better growth than before.
As said before, yeah dollarization is not good but it's not like Argentina was swimming in money before it.
good reading Bro, any analysis to be provided after that?
The understanding that I have is that they borrowed in foreign currency from the IMF. The IMF fixed it to keep raising their interest rate to fight inflation but as Warren Mosley has pointed out, raising the interest rate just feeds the inflation making it worse. They needed to get rid of foreign currency debt.
Killing the peso? The peso is already dead!
I think what would be more beneficial than dollarization would be for Argentina to relax many of it's protectionist laws that discourage outside investment and to revamp their ludicrous tax laws that harm small business in the country. That and tackling the corruption that seems to be rampant would all go a long way in improving the situation. His devaluation of the Peso to be closer to the "real" exchange rate on the black market was a good first step.
what you're describing would take several lifetimes of world class political leaders coming to power consecutively in Argentina. The debate of why those protectionist laws were put in place versus the theoretical benefits of potential foreign capital will be endless, revamping and finding balance with the numerous tax laws that you're describing will take many years during which time Argentinians are suffering severely with conditions progressively worsening, and tackling corruption while the bulk of the government is corrupt is an extremely hard task without any guarantee to succeed. You can do all that, or you can dollarize. You can see why an embattled Argentinian people are preferring to take the shorter, guaranteed path to immediate relief, and a relatively stable future.
very balanced - makes sense video - thanks
Great video. What about the option used when the Brazilian real was created around 1994, with a transitional currency that has prices stabilized before being introduced?
There have been about 10 different versions of its currency since 1896 or about one new currency every 20 years. The problem is pretty deeply rooted.
The problem with just pegging the currency is that no one is going to trust a Peronist goverment to actually comply with it.
Exactly my thoughts
Not being able to go back is a serious problem in my opinion especially if a dolar crises happens or America gets an economic crisis Argentina will be effected way more than other countries
Or maybe we started using the Brazilian Real 🤑
Not being able to go back is the biggest reason to do this shit
Currency board is a great idea in theory but in practice it is dependent on people following the rules of the currency board. And that is exactly where things went wrong with Argentina the first time. That’s why it’s better to just go with the dollar completely instead of a currency board. Simpler plans tend to be more effective.
Great video, thanks
Agreed: when a country's economy is going in the toilet, it's very helpful to be able to cut rates or do QE. And that is the worst time to be raising taxes.
Thats like saying if you lose your job, it’s a good idea to max out your credit cards instead of making spending cuts and living a more fiscally stringent lifestyle. It’s just kicking the can down the road and making it worse when you have to address the issues.
@@duncanfromunderthebridge No, cutting rates is needed to avoid deflation.
@@djayjp Mhm. God forbid things get cheaper and more affordable when people have lost their jobs. It’s always helpful when groceries get more expensive right after you’ve been laid off.
@@duncanfromunderthebridge Meanwhile everyone is losing their jobs so they can't afford the slightly cheaper cost of goods.... Cutting rates allows companies to function during a downturn, avoiding layoffs, and it won't cause inflation.
@@djayjp QE is by definition inflation. It’s printing money to buy bonds, expanding the money supply. Decreasing interest rates also causes inflation, as lower interest rates encourage people to borrow money, which also increases the money supply in a fractional reserve banking system.
IMHO, Argentina's primary problem is Peronism; that is, the government stays in power by buying votes, using resentment to reinforce the discontent. A monetary board was tried before, and it failed because Peronism returned. If full dollarization would prevent this, full dollarization is the way to go.
In other words, the arguments against dollarization made here are the precise reasons to go to dollarization.
You missed the part where Argentina's dollarization plan is only a stopgap. It fixes the inflation quickly, but the long term goal is a free market. A free market doesn't prescribe a currency, the market picks what it wants.
Hi, very good video (as always). Could I suggest a part II about how dollarisation affects class divide between the haves and the have notS?
Simple example: you said "if US raise interest rates to fight internal inflation dollars are likely to leave the country". Ok, whose dollars?
"there is some evidence that countries that dollarise will face harsher economic crisis". Ok, who pays for them?
The argument with Greece, Spain, and Italy is a bit unfair - as they're all part of the same economic zone, meaning German banks will bail out the Greek government once it f*cks up. The same cannot be said in the case of Argentina - when something goes wrong, there's no reason for the US to jump to it's defence. Not only that, but they have literally zero say in how the US's money supply, monetary policy work... This video is actually great - now that I think of it slightly more in depth, it's actually worse of an idea than I thought. And it's not like Milei is competent. I mean switching from one piece of paper to another isn't instantly going to make more people educated, more machinery get built, or more stuff produced and consumed. I mean the literal Gross Domestic Product is going to be the same, and in the long-term, I'd love to hear an argument that would explain why Argentina couldn't do that without it's own peso... Besides, not to mention you're giving up a lot monetary control by killing the central bank. Sounds like a risky move unless you're ready to be a new US state. And yeah, combined with all the other ideas he's proposed... Gosh it's gonna be a tough road ahead for Argentinians... But then again, y'all chose this.
You are absolutely right. And Greece, Spain, and Italy acutally DO have some control over the euro. They send governors to the ECB's Governing Council which sets monetary policy such as interest rates in the eurozone. The euro is therefore NOT a foreign currency in eurozone member countries. Would anybody claim that the US dollar is a foreign currency in California or New York? Of course not!
The problem I see with the "dollorized" countries you mentioned, when coming to economic growth, is that when these nations abandoned their national currency, they did not reduce overall regulations/make it easier to start and/or run a business (such as in Zimbabwe, Italy, Greece, etc.) OR they did not make their nations more stable (e.g. El Salvador [although, their current president, Nayib Bukele has "fixed" the crime issue by sending all gang members to prison]) which I think is why they have not seen much growth since dollarisation or they have been left just as financially unstable as they were when they still used, say the Greek Drachma.
I am not a fan of Dollarisation, but if Javier Millei actually does reduce overall regulations and make Argentina look more like Singapore in terms of "economic freedom", then his dollarisation plans might actually work unlike the Keynsian status-quo.
Exactly my thought
But on the flip side I think Greece ,Italy had a say in EU as being a member but here argentina is clearly becoming satellite state of USA
thanks yuri, now i understand dollarization
14:38 nobody bailed out Italy
And I would say that the adoption of the euro is not a dollarization of the economy. Dollarization also implies having no control about the central bank that prints the money, the ECB governor and its objectives are defined by the European Council which is the head of governments of each EU country.
I lived half my life in an economy that became dollarized. What I can say is: going to bed knowing tomorrow you can buy bread with the money you have today is one of the best feelings in the world.
When I was 8 years old the economy collapsed. This was after multiple collapses that had occurred in the decades leading up to this moment. The absolute ineptitude of the country's leaders to have sound fiscal and monetary policy was a conundrum that appeared to elude even the most well intentioned politician. If dollarization has brought one thing is monetary stability. We are no longer held to the whims of one corrupt politician or another printing money like its Weimar Germany and the Allies want their cut. The economy is not great, not in any means. The country is still very poor, there are too many narcos and not enough security, but at least the dollar you made today is worth a very similar amount tomorrow.
When an 8 year old can't buy a sandwich for lunch at the school cafeterias and has to go hungry for the day, because mother didn't consider that prices doubled last night, that is a feeling you never forget.
Argentina can learn from Turkey in solving its problems regarding high inflation and depreciating currency. Through economic reforms and increasing central bank's independence.
It could pass a law prohibiting the central bank from bailing out the government by reckless money printing for example.
Like you said Argentina has a lot of potential and with the right mix of policies it can truly become a wealthy and prosperous nation. It should not give up and dollarize
HAHAHAHAHAHAHA
Next government will come and change the law that the reason Millie is not in favour of board cause next government can abandon it
Turkey is one of the last examples to follow. Their central bank has been at the control of Edogan for the past few years. He kept firing the heads of the central bank till he placed his own men at the helm and kept cutting interests rates for years.
Central-bank-independence is in theory, a good idea. But the actual result from the experiments have not been as expected (well, not by textbook nerds) - the conclusion is that they can never be independent. It seems majority of the time they will be serving bankers instead.
@@Nabrolo I'm not referring to the last couple of years where Erdogan tried to implement those really bad policies.
I was talking about the beginning of the 2000s after Turkey struggled with sky high inflation which topped 120 percent in the 1990s.
The economic reforms of that period included more central bank independence which resulted in restored faith in Turkish lira and more inward investment.
13:00 All central banks already somewhat follow the US Central bank on raising interest rates. Otherwise their money would devalue so much that it would be not good for a lot of reasons.