Dollarization would eliminate Argentina's future inflation risk, former IMF board member says

• Dollarization would end inflation risks in Argentina, said former IMF board member Mark Rosen.
• "It would anchor monetary policy, and be a big positive change," he told Bloomberg.

Ditching the Argentinian peso and adopting the US dollar could put an end to Argentina's inflation risks, a former International Monetary Fund official said.

"Dollarization would be very positive for Argentina," Mark Rosen, who was a US member of the IMF board from 2019 to 2021, told Bloomberg. "It would basically eliminate most of the risk of future inflation, which is a huge issue. It wouldn't necessarily deal with the spending issue, but it would anchor monetary policy, and be a big positive change."

Dollarization is a key priority of Javier Milei, the frontrunner in Argentina's presidential election. The strategy is meant to tackle the country's hyperinflation, which sits at a 124.4% annual rate.

The proposal still lacks key details, such as where to source the dollars needed for a currency transition. The country has long faced a shortage, fueling exchange rate turmoil and forcing Buenos Aires to turn to other currencies, like the Chinese yuan.

Francisco Zalles, an economist who helped Ecuador dollarize in 2000, said earlier this month that Argentina doesn't need dollars to dollarize, predicting that greenbacks would flow back into the country as soon as it makes the switch.

But critics of Argentina's dollarization idea have previously pointed out that it would be handicapped by the shortage. In essence, moving from the peso would be the same as suddenly shrinking the nation's monetary supply, which would jump start a recession.

Even Rosen acknowledged the dollar shortage concern: "Dollarization — if they can fund it — makes sense. The issue is can they fund it? And will the international community fund it?"

Now a partner at Advection Growth Capital, Rosen's four-decade career as an investment banker included exposure to Latin America.

In his view, dollarization would force coherence in Argentine policy, as it's a change that would be difficult to reverse. The currency has also grown in de-facto use throughout the country, used in company wages and in certain consumer transactions.

But not every IMF official shares his take. Former official Alejandro Werner has previously called the plan impossible, Bloomberg reported.

Though the lender has not officially weighed in on dollarization, Argentina's economic situation does matter to it. The IMF has lent $44 billion to the country, a debt Buenos Aires has yet to fully pay back.