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- Argentina presidential candidate Javier Milei wants the country to use the US dollar.
- He sees the greenback as a tool to crush sky-high inflation and rescue an ailing economy.
- An adviser said replacing pesos with dollars should occur in the first year of a Milei administration.
Argentina's leading presidential candidate, Javier Milei, has no intention of joining the dedollarization wave — he has a plan to do the opposite.
The libertarian politician pulled off a surprise primary win this month, and he's now considered the favorite to win the October election. The peso plunged about 20% to about 350 per dollar Monday after the primary results came out, as Milei has a bold vision to dollarize the economy.
While dollarizing would diminish some of Argentina's autonomy as far as monetary policy, he believes it's necessary to crush inflation, which is soaring at 113%, in about a year.
The idea stems from economist Emilio Ocampo, who is an adviser to Milei and wrote a book on dollarization. In an interview with Bloomberg, Ocampo said hyperinflation is an obstacle to structural reform and that dollarization provides "a means to achieve economic and political objectives."
He also detailed how dollarization would work, saying replacing pesos with dollars should occur in the first year of a Milei administration, adding that it would be "voluntary" and that people will be able to use both currencies with "absolute freedom" to move capital.
Additionally, he called for an "equilibrium exchange rate" that's close to where the peso is trading on unofficial currency markets, where the currency is less than half the official rate.
Foreign exchange restrictions and barriers, too, would be lifted in the event of dollarization.
Notably, the central bank wouldn't be able to print money, and its holdings would be converted from pesos to dollars. It would lose its role as the custodian of reserves, and instead a special purpose vehicle, called a Monetary Stabilization Fund, would be created overseas in a country like Switzerland, Luxembourg or Ireland, according to Ocampo.
That fund would be over-collateralized at a 4-to-1 ratio, and incoming cash flows would be used to pay down debts, he added.
Ultimately, Ocampo believes a transition to the greenback would allow Argentina to pay off all its debts to the Monetary Stabilization Fund within four to five years — which would mark the largest cancellation of Argentine debt without a default.
The move to adopt the dollar was supported by economist Steven Hanke on Wednesday, who wrote on X that Argentina should "mothball the central bank" and dollarize.
The peso, for its part, has been depreciating since 2008 thanks to hyperinflation and debt. The country's external debt climbed to 45% of its GDP at the end of last year, or about $277 billion, according to CEIC data.