Argentina Weighs Dollarization to Tackle Economic Woes, But Risks Remain
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Argentina suffers from high inflation, interest rates, unemployment and declining growth. New president wants to replace peso with US dollar to tame inflation.
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Argentina tried pegging peso to US dollar in 90s which worked initially but failed later leading to 350% devaluation of peso.
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Dollarization takes away central bank's monetary policy functions and ability to act as lender of last resort for banks. Can be counterproductive when economics cycles diverge.
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Dollarization works for small open economies closely integrated with US, not larger economies like Argentina with only 1% exports to US.
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Instead of dollarization, Argentina should focus on fiscal discipline, banking reforms, diversifying trade, keeping high interest rates to tame inflation.