Argentina should dollarize

Here is my Bloomberg column on that topic, here is the trickiest point:

Another concern, more significant, is that dollarization would be a huge upfront cost to the government of Argentina: Someone would have to actually come up with all the dollars to serve as currency. Keep in mind, however, that the economy of Argentina would also be acquiring a valuable asset — namely, dollars. The net cost should be zero; realistically, acquiring the dollars should prove a net positive. Argentina’s government needs to invest in the future of its citizens, and introducing a stable currency is one of the best ways to do so.

Dollarization might involve major fiscal adjustments, if only to accumulate the dollars to make it work, and that could bring chaos to Argentina politics. That is a real risk, but it has to be weighed against the political risks of continuing hyperinflation. At least dollarization offers some chance of eventual success.

I would add that the government of Argentina cannot and should not forsake all public sector investment.  Think of dollarization as a relatively high return form of such investment.  As for whether using the euro would be better, I think the ties of the Argentina elites to Miami banking are sufficiently strong that the dollar is clearly more focal, even though the EU trades with Argentina more than the U.S. does.