New Argentina President Puts the Peso’s Future in Doubt

The victory of political outsider Javier Milei in Argentina’s presidential ballot has serious repercussions for the country’s struggling economy, including the embattled peso.

A libertarian and former financial analyst who campaigned on a vow to drastically shake things up, Milei plans to dollarize the Argentinian economy. Dollarization would see the nation abandon the Argentine peso and use the US dollar as its currencyinstead.

The value of the peso has plummeted 858% against the U.S. dollar over the past five years as the central bank printed more of the currency to help the country’s spendthrift government avoid defaulting on its debts. That has fueled rampant price increases.

If he follows through on his promise, Milei will throw the country into unknown territory. Despite Ecuador and El Salvador having gone the same route, there is no evidence that a county of Argentina’s size can dollarize its economy in a workable way.

Argentina has one of the world’s highest inflation rates. Data released last week showed that prices rose 142% year-over-year. Milei’s rationale for adopting the dollar is that it is stronger than the peso and, unlike the peso, cannot be printed with impunity.

Critics says the move will become a straightjacket, saying that dollarization results in a country losing autonomy to influence the economy through monetary policy moves such as interest rate changes. Supportersof the plan favor the move as a practical strategy to tame what has been a decades-long problem.