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Prof. Steve Hanke: Dollarization – A Necessary Move for Argentina?

Tom welcomes back Steve Hanke Professor of Applied Economics – Johns Hopkins University.

In this discussion, Professor Steve Hanke emphasizes the potential benefits of dollarization for Argentina’s economy. He references the country’s history of economic instability, multiple currency and banking crises, and high inflation rates. Hanke suggests that dollarization, similar to the strategies implemented in Ecuador and El Salvador, could lead to a significant reduction in inflation and increase access to long-term credit. He also highlights the success of dollarization in countries like Panama and Hong Kong.

Hanke argues that dollarization would align Argentina more closely with the United States, making its currency more secure and convertible. He points out that the stability brought by dollarization would create greater opportunities for the demand of Argentinian goods, particularly in the agricultural sector. He also states that dollarization simplifies borrowing and stabilizes foreign exchange, which benefits the circulation of the US dollar.

However, Hanke acknowledges that a reserve would be needed for small change and suggests that it should be backed at a one-to-one rate with US dollars. He dismisses the idea of using gold or Bitcoin as unnecessary especially with a population already highly reliant on U.S. Dollar Notes.

Hanke also addresses the political challenges of dollarization, mentioning that the concept may face opposition from the political class who would lose the ability to borrow money from a central bank. Additionally, he highlights the disproportionate impact of the inflation tax on lower-income individuals, underscoring the importance of maintaining a strong budget.

Overall, Hanke asserts that dollarization can bring stability, reduce inflation, and create economic opportunities for Argentina. He believes that adopting the US dollar would help mitigate the country’s past economic challenges and align it more closely with economically successful nations.

Time Stamp References:
0:00 – Introduction
0:55 – Argentine Monetary History
6:52 – How To Dollarize
12:37 – Argentina Reserves
14:00 – Gold Backed Peso?
16:07 – Gold Reserves
17:05 – El Salvador & Bitcoin
18:11 – Coinage Provisions?
19:02 – Stability Benefits
24:00 – Exports & Invoicing
25:35 – US Dollar Demand
27:00 – Bond Issuances?
28:10 – BRICS Question?
28:42 – Responsible Politics?
29:12 – Citizenry & Budgets
30:50 – Wrap Up

Talking Points From This Episode

  • Argentina attempted to dollarize the economy numerous times but failed due to lack of votes and unsustainable monetary policies.
  • Steve Hankey suggested dollarization as a viable solution which would likely cause inflation to plummet and long-term credit to become accessible.
  • A dollarized system would create a ‘confidence shock’ and benefit those on lower incomes by reducing the impact of the inflation tax.

Guest Links:

Steve H. Hanke is a Professor of Applied Economics and Founder & Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore.

He is a Senior Fellow and Director of the Troubled Currencies Project at the Cato Institute in Washington, D.C., a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing, a Special Counselor to the Center for Financial Stability in New York, a contributing editor at Central Banking in London, and a regular contributor to the Wall Street Journal’s Opinion pages. Prof. Hanke is also a member of the Charter Council of the Society of Economic Measurement and of Euromoney Country Risk’s Experts Panel.

In the past, Prof. Hanke taught economics at the Colorado School of Mines and at the University of California, Berkeley. He served as a Member of the Governor’s Council of Economic Advisors in Maryland in 1976-77, as a Senior Economist on President Reagan’s Council of Economic Advisors in 1981-82, and as a Senior Advisor to the Joint Economic Committee of the U.S. Congress in 1984-88. Prof. Hanke served as a State Counselor to both the Republic of Lithuania in 1994-96 and the Republic of Montenegro in 1999-2003. He was also an Advisor to the Presidents of Bulgaria in 1997- 2002, Venezuela in 1995-96, and Indonesia in 1998.

He played an important role in establishing new currency regimes in Argentina, Estonia, Bulgaria, Bosnia-Herzegovina, Ecuador, Lithuania, and Montenegro.

Prof. Hanke has also held senior appointments in the governments of many other countries, including Albania, Kazakhstan, the United Arab Emirates, and Yugoslavia.

Prof. Hanke has been awarded honorary doctorate degrees by the Bulgarian Academy of Sciences, the Universität Liechtenstein, the Universidad San Francisco de Quito, the Free University of Tbilisi, Istanbul Kültür University, Varna Free University, and the D.A. Tsenov Academy of Economics in recognition of his scholarship on exchange-rate regimes.

Prof. Hanke and his wife, Liliane, reside in Baltimore and Paris.

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