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Milei and dollarization

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I try not to blog about stuff I don’t know much about, but sometimes I can’t help myself.  This is one of those times, so caveat lector.  This could be way off base.  Do not quote this to your friends.  Do not train your AI on it. Argentina’s libertarian President Javier Milei has made noises about dollarizing the Argentine economy.  I have no idea if this would be a smart thing to do, but let’s assume it is. One argument against dollarization is simply that you can’t dollarize without getting your hands on lots of dollars, to replace existing pesos with.  The economy needs currency to function, and even rapidly depreciating pesos are better than barter.  Here is Tyler Cowen: Another concern, more significant, is that dollarization would be

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I try not to blog about stuff I don’t know much about, but sometimes I can’t help myself.  This is one of those times, so caveat lector.  This could be way off base.  Do not quote this to your friends.  Do not train your AI on it.

Argentina’s libertarian President Javier Milei has made noises about dollarizing the Argentine economy.  I have no idea if this would be a smart thing to do, but let’s assume it is.

One argument against dollarization is simply that you can’t dollarize without getting your hands on lots of dollars, to replace existing pesos with.  The economy needs currency to function, and even rapidly depreciating pesos are better than barter.  Here is Tyler Cowen:

Another concern, more significant, is that dollarization would be a huge upfront cost to the government of Argentina: Someone would have to actually come up with all the dollars to serve as currency. Keep in mind, however, that the economy of Argentina would also be acquiring a valuable asset — namely, dollars. The net cost should be zero; realistically, acquiring the dollars should prove a net positive. Argentina’s government needs to invest in the future of its citizens, and introducing a stable currency is one of the best ways to do so.

Cowen seems to think acquiring dollars shouldn’t be an insuperable problem.  I’m not sure what he has in mind here, maybe he’s thinking that it would be a wise decision for Argentina to borrow greenbacks.  The problem is that Argentina is on the brink of another debt default, so finding a lender might not be so easy.

But here is my question:  why shouldn’t the United States just give Argentina the dollars it needs to dollarize?  We print a bunch of dollars and digital equivalents, give them to the Argentine government, which then exchanges them for pesos.  The dollars then circulate in Argentina, greasing the wheels of commerce.  What cost is there to us, other than printing and shipping greenbacks?

It seems unlikely that this will happen, of course, because the optics would be terrible.  (“Why are we giving billions of dollars to Argentina when we have so many problems here at home?”)  But really, what would the cost be?  Indeed, why shouldn’t we offer free dollars to any country that wants to dollarize?  If dollarization is really a good policy, we can help our neighbors and appear very generous without, in fact, incurring any significant costs at all.  What am I missing?

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