The bolivar is Venezuela’s official currency, or “legal tender”, but something north of 70%+ of transactions in Venezuela is done in dollars. The same is true in Tehran and any other nation known to debase or overprint its domestic currency. The paradoxical truth that most economists do not understand is that devaluation and/or “printing money” leads to the rapid disappearance of the debased or “printed” currency.
Keep that in mind as Argentina’s newly elected president, Javier Millay, promises to “dollarize” the country. You don’t need to. Market forces long ago did what it promised to do. To dollarize it would be for Milei to introduce the situation where it is not needed.
To understand why, readers need only ask themselves what they would do if someone came to them and offered to pay them Argentine pesos in exchange for their job, home or business. Few would take the damaged currency, and they wouldn’t for obvious reasons: trade is about providing goods and/or services in exchange for goods and/or services. In this case, accepting pesos in exchange for goods and services would benefit the provider much less.
So if you plan to buy a house in Argentina or any other big ticket item, you better bring dollars.
What is interesting about Milei’s redundant intent is the consideration of what members of the monetarist religion (among others) will think. Consider that this variant of Keynesianism really and truly imagines that economic growth is spurred by the injection of so-called “money supply” into the “system.” Central planning dies hard, it seems.
The reality is that reasonably reliable money is always in circulation and everywhere there is production. Channeling Adam Smith, it is like an “invisible hand” providing the money that liquidates the transactions. Money in circulation is a market phenomenon. If you are productive, there will always be money to allow the exchange of what you have produced. No sane person would ever worry about too much or too little money in their country. The latter is determined in production.
So yes, markets work. The problem is that they don’t work the way economists want them to. When economists look in the mirror, they imagine themselves ‘providing’ money or ‘matching the ‘demand’ for money with the supply, two conceits as repugnant as the Five Year Plans of the old Soviet Union. Throw in economists’ desire to study money in circulation or “velocity” or all the other full-time operations for the economics profession. More realistically, there is no way of knowing how much or how little money should be circulating in any economy. Production once again determines the latter, which means that the so-called “money supply” is far beyond the capabilities of any economist, thousands of economists, or tens of thousands of government officials.
These truths should move Milei. This is because the reality of the market will save him the wasted effort of legitimizing reality. More realistically, a free market type like Milei would not need a “monetary policy” other than to allow market forces to manipulate the circulation of dollars, euros, Swiss francs, or any other reliable concept of money.
However, Milei would be wise to be vigilant. Free people naturally prosper, and their prosperity is a magnet for investment, and especially people who are magnets for investment. Assuming Milei lives up to his rhetoric of getting out of the way, the natural result will be the arrival or return to Argentina of talented people who find the money. The latter tends to worry economists so full of themselves that they imagine they have the ability to “carve” too much or too little money into the “economy.” Milei should ignore these central planners. To think that there is “too much money” in circulation is equivalent to saying that there is too much production or that the economy has reached its “speed limit”. Keynesians believe in the latter, while monetarists who reject Keynesianism unwittingly embrace a variant of the speed limit myth.
It’s just a tacit warning to Millay that while socialist economic policy is anti-growth, so is economic policy in general. A free market thinker like Milei would hopefully not propose a policy other than freedom, which fortunately does not require economists or policy theorists to implement.