- Argentina's presidential front-runner wants to do away with the peso and install the US dollar.
- Javier Milei has said this could help tame inflation, which hit 109% in May.
While some emerging economies have demonstrated an eagerness to untangle themselves from the dollar's dominance, Argentina may go in a radically different direction.
The front-runner in Argentina's presidential election has proposed ditching the peso completely, and instead replacing it with the US dollar.
Javier Milei, an economist and libertarian congressman, is vying to win the presidency in October and pitches the greenback's adoption as a solution sky-high inflation, which hit 109% in May.
"The peso melts like ice in the Sahara Desert," Milei is known to say, according to Bloomberg.
Over the last year, the peso has lost half its value against the dollar, which makes imports more expensive. Meanwhile, benchmark interest rates sit at 97%.
Adopting the dollar as the national currency would mark a radical departure from Argentina's as well as other countries' efforts toward de-dollarization, which has largely focused on using other currencies for international trade and reserves.
In April, Argentina said it will start buying the bulk of its Chinese imports in yuan instead of dollars. And in January, Brazil and Argentina said they are preparing to launch a joint currency.
Despite those efforts, Argentine consumers are already using US dollars in day-to-day transactions and as a form of savings.
"Argentina is already dollarized, de facto dollarized. So Argentines have already chosen to use the dollar to save money and to save themselves against the inflationary tax," former Wall Street investment banker Emilio Ocampo, who originated the dollarization idea that Milei is proposing, told Bloomberg.
He added that the country's other attempts to control inflation have failed. The peso was momentarily replaced by the austral in the mid-1980s, and then was pegged to the US dollar in the 1990s for a number of years.
But hyperinflation, debt crises ,and currency crises persisted as government spending resulted in chronic fiscal deficits.
Other countries, such as Ecuador, already use the US dollar as their national currency, some of which adopted it in the wake of economic crises. If Argentina follows suit, it would be the largest economy to dollarize.
But recent polls show that 60% of Argentines oppose adopting the dollar, according to Bloomberg, and economists who oppose Milei's plan worry that it would give too much monetary power to the US Federal Reserve.
Using the dollar could also threaten Argentina's balance of payments if its imports jump and exports tank. And even if Milei wins the election, his congressional coalition may not win enough seats to enact his dollarization plan.
But Ocampo told Bloomberg that if Argentina dollarizes, it would be "because it basically has no other option."
"And it's in a scenario where the only way to stabilize prices would be with dollarization," he said.