Domingo Cavallo's suggested monetary system for the country, based on his former role as Minister of Economy.
**Argentine Economist Domingo Cavallo Advocates for Bimonetary Regime in Argentina**
In a recent turn of events, renowned Argentine economist Domingo Cavallo has proposed a bold solution to stabilize the country's economy: a bimonetary regime. This system would allow the Argentine peso to coexist with the U.S. dollar as legal tender, providing greater financial stability in the face of Argentina's heavy foreign currency debt and limited external credit access.
Cavallo, who served as Argentina's economy minister in the 1990s, believes that accumulating substantial foreign currency reserves, particularly in U.S. dollars, is crucial for paying for imports and servicing external debt without problems. He argues that this move would support a process of "re-monetization" of the economy, enabling both the local currency and the dollar to circulate simultaneously.
The proposal has a distinct context under the current administration of President Javier Milei, who is focused on anti-inflationary policies and economic stabilization. While Milei's government has prioritized drastic austerity and deregulation measures to curb inflation, they have yet to explicitly endorse a formal bimonetary regime akin to Cavallo's vision.
Entrepreneurs react to Cavallo's ideas with mixed feelings. Some business leaders recognise the potential benefits of dollarization or bimonetary regimes in stabilising inflation and restoring confidence. However, such proposals often face skepticism due to concerns about sovereignty, implementation complexity, and political feasibility.
In a recent blog post, Cavallo stressed the need for reserve accumulation to sustain disinflation and promote remonetization of the economy in pesos and dollars. He warned that dollarization does not solve all problems and advised each country to analyse the feasibility of dollarization based on three factors: technical possibility, public acceptance, and political possibility.
Cavallo's relationship with President Milei has soured due to a comment on his personal blog, which caused Milei's fury. In the comment, Cavallo advised Milei to eliminate currency restrictions to prevent the peso's appreciation. The President expelled Cavallo's daughter, Sonia Cavallo, who was ambassador to the Organization of American States (OAS).
Despite the disagreements, Cavallo has expressed admiration for Mahuad's negotiation capacity, a subject he taught at Harvard. He previously collaborated with Mahuad when he was mayor of Quito, suggesting the creation of a bimonetary system like Peru's. Cavallo presented Mahuad, former president of Ecuador, at a lunch organised by the Mediterranean Foundation.
Cavallo emphasised the importance of clear communication when making decisions in politics. He also mentioned technicians Gustavo Mondino, Jorge Vasconcelos, and Daniel Marx as collaborators in dollarizing Ecuador during Mahuad's presidency. Cavallo stated that the military overthrew Mahuad, but dollarization became state policy in Ecuador.
In his latest blog post, Cavallo marked differences with the President and the economic team, reiterating his belief in the need for a bimonetary regime to stabilise Argentina's economy and tackle inflation. Cavallo believes that Argentina should move towards this regime, but the political will is yet to be seen.
In light of Cavallo's proposal for a bimonetary regime in Argentina, there was discussion among business leaders about the potential benefits and drawbacks of such a system in relation to finance and business. While some recognized the potential for stabilizing inflation and restoring confidence, concerns about sovereignty, implementation complexity, and political feasibility persisted.
Following discussions with former President Mahuad of Ecuador, Cavallo emphasized the importance of clear communication when making political decisions and reaffirmed his belief in the need for a bimonetary regime to address Argentina's heavy foreign currency debt and limited credit access, ultimately enabling greater financial stability.
