He investment bank Goldman Sachs warned about “the costs and disadvantages” of dollarization what the presidential candidate proposes Javier Milei, for understanding that to apply it the country needs “a context of solid macroeconomic policy and a disciplined fiscal policy”, something that in Argentina “is not a fact.” “Without fiscal discipline, dollarization could be very painful or eventually collapse,” warned the North American bank, for which the macroeconomic outlook of the Argentina “It is in a state of indisputable deterioration.”
«With the general elections quickly approaching, dollarization moved to the center of the political debate. The exchange rate has played a central role in previous stabilization plans. Dollarization goes one step further. “Proponents argue that if the Central Bank cannot finance the Government, it will be forced to finally adjust fiscal accounts,” Goldman Sachs considered in a report titled “Argentina: Is dollarization an offer that cannot be rejected?”
“Dollarization is not stabilization”
In that work, the financial entity assured that dollarizing the economy “has costs and disadvantages and the preconditions for successful adoption are demanding.” In that sense, he pointed out: “it has costs and limits the set of policy tools. From a technical point of view, dollarizing is not an easy step either. Preserving it and benefiting from it in the long term is even more challenging. Dollarization is not stabilization. Fiscal consolidation is essential, whether dollarization is adopted or not.
«Dollarization requires a solid macroeconomic policy context to be sustainable and requires disciplined fiscal policy, which is not a given. Without fiscal discipline, dollarization could be very painful or eventually collapse,” he warned. And he added: “To place the economy at a sustainable level, rapid and tangible structural fiscal adjustment is needed, together with an independent and responsible Central Bank, free from the clutches of fiscal dominance, financial liberalization and structural reforms to make the economy more open, productive and flexible.
Dollarization, for Goldman Sachs, implies loss of income from seigniorage from the issuance of national money. Also, loss of control over the money supply, that is, the money supply becomes exogenous. In turn, it limits the ability of the Central Bank to act as a lender of last resort (since printing is closed).
Consequently, the bank warned: «Dolarizing is not an easy step from a technical and legal point of view. Preserving it and benefiting from that monetary agreement in the long term is even more difficult. There are several economic characteristics, or preconditions, that mitigate the costs of adopting the dollar as a currency. In our evaluation, none are really fulfilled in the current Argentine context.
