Latin American precursors of Javier Milei’s dollarisation plan for Argentine economy

Argentine president-elect Javier Milei. File.
| Photo Credit: REUTERS

Argentine President-elect Javier Milei ran his campaign on promises to ditch the peso for the U.S. dollar and do away with a central bank — all in the name of subduing rampant inflation.

The far-right outsider is hoping to rein in inflation that has hit 140%, bedevilling the South American country as it struggles with a deep economic crisis.

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Several Latin American countries have already officially or unofficially dollarised their economies, hoping to usher in new eras of economic and financial stability that could not be achieved using their own currencies.

Ecuador adopted the dollar in March 2000, hoping to shake off a profound banking crisis that had caused $5 billion in losses and left thousands of people bankrupt. The ensuing price increases threatened to accelerate into runaway hyperinflation.

Emergency steps

The transition from the sucre to the dollar came after a bank holiday coupled with a temporary freeze to half of all deposits — emergency steps that seemed to work. Inflation levels came down rapidly, with Ecuador sometimes even veering into periods of deflation. The country’s 2023 annual inflation is expected to sit at 3.1%.

The dollar became the official currency of El Salvador on January 1, 2001. The government of then-President Francisco Flores argued the changeover would make the country more attractive to foreign investments and trade, plus reduce the risk of devaluation and allow local banks to provide better credit offers. But “dollarisation had adverse effects,” according to independent economist Cesar Villalona.

The dollarisation process in Venezuela has been more informal.

U.S. dollars — a symbol of “American imperialism” — have paradoxically become the most-circulated currency in Venezuela, according to economists.

In some Latin American countries such as Peru and Uruguay, the dollar is used to pay for certain consumer goods and services and U.S. bills can be withdrawn from ATMs and used to open bank accounts, even though the official currency for government affairs remains fixed in local money.