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Home » Why the US Dollar Still Rules the Roost in Argentina

Why the US Dollar Still Rules the Roost in Argentina

Manuela González Cambel by Manuela González Cambel
February 7, 2014
in Economics
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EspañolWithout doubt, the US dollar has value and is an important world standard. Still, not all countries have fallen into the Argentinean craze that is “dollarization.” Argentineans have a special relationship with this relatively strong foreign currency: the dollar has won our confidence through the years.

To arrive at a complete understanding of this phenomenon, however, we cannot rely solely on the dollar’s role in the economy. We need a complement for a full explanation: the Argentinean peso.

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Historically, those who bet on the dollar were victorious as the currency rose in value. The peso, on the contrary, succumbed to inflation and fell into disrepute.

On January 24, Chief of Cabinet Jorge Capitanich announced a loosening of the prohibition on foreign currency accumulation, commonly known as the “cepo cambiario” or currency exchange control, implemented during the Kirchner administration in July of 2012. This new countermeasure will allow Argentineans to buy a limited number of dollars to save at the official value, provided they keep these dollars in a savings account within the bank for one year. Otherwise, these funds will be subject to a 20 percent tax.

Even with these restrictions, is it not rational that Argentineans prefer the dollar, as their pesos melt away every day?

Dólar-vs.-pesoWe feel obliged to possess dollars, because we see storing value in dollars as the only way to protect ourselves against inflation. The unfortunate reality is that, with negotiations first and “patch” measures later, the government continues to steer further away from the macroeconomic legislation necessary to overcome this crisis.

The National Institute of Statistics and Census was in denial about inflation when it operated under the ex-interior minister Guillermo Moreno. Data did not correspond with economic reality, and it was no secret that the inflation rate index, the calculations, and the official responses were based on fantasy numbers.

The “patch” measures included a list of “care prices.” The government established 194 products with fixed prices that could not be exceeded. Of course, inflation does not apply only to these products, and this measure acted merely like an artificial fragrance, to soothe consumers and mask the smell of explosive inflation.

Saving dollars is logical in these conditions. It has also become such common wisdom and tradition — over and above the economic considerations — so it will not be easy to reverse this attitude.

Those in government ought to review our history, given that out-of-control peso devaluation and inflation has led to the departure of several leaders. Argentineans do not need their speeches that encourage us to save in pesos, because it is “better for our country.” Argentineans need to see real and sustainable change that restores confidence in the peso — conditions that make us want the peso over the dollar.

Will the prevailing will in our government, however, this seems impossible.

The dollar’s undeniable presence in Argentina exists on account of the preferences of Argentinians. The fixed exchange rate with limited access is not a feasible solution, and this has been demonstrated throughout history — including in Venezuela right now.

Instead of forcefully constraining people as they seek to buy dollars, how about those in government convince Argentineans to buy pesos because it is more convenient and could bring them more benefits than saving in a foreign currency?

Restoring Argentinean confidence in the peso will be a long process, but it could be done. On the other hand, ignoring the problems only extends them. Worse, it undermines any trust that citizens have in the state: increased confidence in the dollar means less confidence in the Argentinian government.

Translated by Rachel Rodriguez.

Tags: ArgentinaArgentinean Pesocurrencyus dollar
Manuela González Cambel

Manuela González Cambel

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