The Dollarization Option
Micheal Saylor, the founder of Microstrategy, has urged Argentinians to consider bitcoin as their currency amidst inflation rates that have seen the Argentinian peso depreciate by over 40% in the last 12 months. Saylor, whose company is one of the largest corporate holders of bitcoin, tweeted that those living in Argentina now “need bitcoin.” Saylor’s tweet came after news reports revealed that some Argentinian politicians are considering replacing the peso with the US dollar to combat inflation, which was at the official rate of 103.4% in March, according to bitcoin.com news.
Despite the apparent widespread support for dollarization in Argentina, some critics suggest that bitcoin’s volatility makes it an unsuitable alternative to the faltering local currency. Some of Saylor’s followers on Twitter called bitcoin too volatile and not yet ready to be a viable alternative to the falling peso, with one user suggesting that it would require a bitcoin-backed stablecoin to enable viability before adoption. The decentralised nature of bitcoin makes it an expensive undertaking, and critics warn that dollarising the Argentinian economy would make the country’s central bank subservient to the policies of the US Federal Reserve. The central bank would also lose the profit it earns from printing currency as dollarisation would replace the peso.
The Policy Brief
A policy brief by the Policy Center for the New South titled “Argentina’s Fiscal Imbalances Will Not Go Away After Dollarization” criticised the proposed dollarization of the economy as a “revival of a zombie idea”. The brief warns that the country’s “fiscal imbalances will not be eliminated by dollarization,” and that it would require “a selective default of domestic currency liabilities, a brutal devaluation, and/or a unilateral conversion of public deposits.” Steve Hanke, a professor of applied economics at Johns Hopkins University, also warned that Argentina can only escape its present predicament by dollarising its economy.