How Argentina learned to love the US dollar
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Javier Milei, the front-runner in last year's campaign for the presidency, won the election on a mandate to abolish the country's own currency and replace it with the US dollar. Argentines hold more US dollars than anywhere outside the US and hoarding them is a way of life. The move is part of the right-wing libertarian's shock therapy plan aimed at transforming Argentina's economic prospects. Polls show that 60% of Argentines oppose the idea because it would give too much power to the US central bank, the Federal Reserve. Argentines have traditionally set little store by their own currency, preferring to convert their spare pesos into dollars as soon as they can. They don't trust financial institutions much either, so they resort to what is locally known as the 'colchón bank' - that is, stuffing their dollars under the mattress. To get to the root of the Argentine people's obsession with the US dollar, you have to go back to the dark days of the 1970s and 1980s, when periods of hyperinflation blighted the country's economy. During that time, uncontrolled price rises eroded the value of wages and made a mockery of savings, to the point where people lost faith in their own currency. The most ambitious effort was the so-called Convertibility Plan launched in 1991. This pegged the peso's value at one-to-one with the dollar. Previous governments had fuelled inflation by printing money. But this time, it was decreed that every peso issued would be backed by one dollar in the central bank's vaults. There have been various attempts to restore Argentina's confidence in its currency - either by shoring up its value or merely choking off the supply of dollars. But they have all, ultimately, failed. Argentina has basically muddled through under left-wing protectionist governments. Their solution to the peso's credibility problem has been simply to make it harder to buy dollars. There are now as many as a dozen different exchange rates, depending on who wants to access the US currency and why. And yet the public's hunger for dollars continues, while everyone from taxi drivers to restaurateurs happily accepts the greenback as payment for goods and services. Dollarisation for Argentina? It certainly wouldn't be the first South American country to do it - Ecuador got there in 2000 and pushed down inflation as a result.
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