A Proposal of Monetary Reform for Argentina: Flexible Dollarization and Free Banking

THE INDEPENDENT INSTITUTE 19.3 (2015): 397-426

Argentina’s economy and monetary institutions are, once again, experiencing a serious crisis. In this article, the authors propose a monetary reform for Argentina that consists of flexible dollarization plus a free banking regime. By flexible dollarization, they mean that the peso should be replaced with the U.S. dollar as a first step, but the market should have the freedom to interact with any selected currency. Therefore, the country does not become attached the U.S. dollar; on the contrary, it becomes a free currency country. By free banking, they mean giving financial institutions permission to issue their own banknotes convertible into U.S. dollars or any other currency or commodity of their choice. The authors conclude by noting that their proposal is insufficient to solve Argentina’s weak economic performance over the long run, but it is a necessary measure in light of the government’s historical dependence on inflationary revenue.