How would dollarisation affect Argentina’s competitiveness?

Abstract

Argentina is in the middle of substantial economic reforms, both on the fiscal and monetary side. The country’s monetary policy programme aims to introduce a free competition of currencies, which would mean allowing multiple currencies to be used and to compete freely. Although official dollarisation (replacing the local currency with the US dollar) is unlikely to happen, according to recent government announcements, it might emerge as a potential outcome considering that it was a central part of the president’s economic agenda during the election campaign.

Research on optimum currency areas (which explores the extent to which geographical regions should share a common currency) does not show conclusively that dollarisation decreases exports or undermines external competitiveness. Yet insights from both economic theory and Argentina’s history indicate that dollarisation is likely to have a negative impact on the country’s ability to achieve export-led economic growth.

In this article, the authors examine:

• President Milei’s plan for monetary policy
• What would dollarisation mean for Argentina’s export competitiveness?
• What lessons can we draw from Argentina’s economic history?

The Economics Observatory (ECO) is a new project that bridges the gap between academic research, government policy and the general public. It’s led by Richard Davies, Professor in Practice at the London School of Economics’ School of Public Policy and director of the Growth Lab’s research collaboration at LSE.