This is one of the most controversial measures proposed by the president-elect of Argentina, a country immersed in a complex economic scenario.
It was last Sunday, November 19, when the leader of La Libertad Avanza, Javier Milei defeated the official candidate at the polls Sergio Massa and established himself as president-elect of Argentina .
One of the proposals that aroused the most antibodies in the opposition during his campaign was precisely the idea of putting forward a plan to “eliminate the central bank to end the inflation forever” .
In a scenario in which Argentina experiences a complex economy and in which the libertarian will be forced to speak with his adversaries to support his projects, many have wondered which territories have already opted for this measure .
The countries which have renounced the said organization They are rare and most are micro-countries. .
Among them are some like Kiribati, Tuvalu, Andorra, Marshall Islands, Isle of Man, Monaco, Nauru, Micronesia, Palau and the Principality of Liechtenstein .
According to information retrieved by the BBC , the only country where its population is in the millions is Panama .
The effects of the absence of a central bank, as suggested by Javier Milei for Argentina
Among the factors linked to the absence of this institution is the fact that They cannot set interest rates or the exchange rate against international currencies, nor can they print money or finance public spending. .
To this is added that complies with the supervision of commercial banks and payment methods to verify that they are reliable.
Alongside that, has the power to manage the country’s international reserves .
It is precisely for these reasons that When a nation chooses to “dollarize” its economy, as Milei promised, the Central Bank figure loses its relevance. .
In this case, it would depend on the decisions taken by the American Federal Reserve who owns said currency.
Esade economist Omar Rachedi told the BBC that the presumed advantage of countries opting for this decision is that They eliminate exchange rate uncertainty and can export more easily his products.
That This makes perfect sense when it comes to small territories that are largely dependent on international trade. .
“For them The advantage of not having exchange rate uncertainty is far greater than any advantage of controlling the national economy through monetary policy. “, said the specialist.
However, financial analyst at consultancy Verisk Maplecroft, Eileen Gavin, pointed out that “Even in dollarized countries, a supervisory authority is still necessary, like in Panama” .
“There is no official Central Bank, but There is a financial supervisory authority responsible for overseeing commercial banks and macroprudential regulation. “.
In this sense, the Esade specialist added that For the economy to continue functioning, an entity must perform these functions. .
“You can make it happen the Central Bank or an organization that replaces it, such as the Ministry of the Economy. You can eliminate the organism, but not all the stains. », added Rachedi.
This is why the work of the Central Bank is important, since seeks to preserve the value of its own currency and maintain a low level of inflation through regulation either by increasing interest rates or lowering them, depending on the case.
“If a country does not have a central bank, The supervisory body that replaces it will have to guarantee the country’s liquidity and international reserves, which is absolutely crucial in a dollarization system, because this is how stability is guaranteed. “, added the analyst to the aforementioned media.
The latter, according to Gavin, “They are truly an economy’s last line of defense.” .
Under this point he stated that “Central banks must be independent of the government, which is often not the case in Latin America” .
This is the situation in Argentina .
In a column for which the libertarian wrote The Economist said that “Over the past 20 years, the country’s politicians and their puppeteers, who benefit from status quo “They stole billions of dollars from hard-working Argentines because of inflation.” .
From his vision, The lack of autonomy of your country’s Central Bank and the desire to print pesos to finance government spending are among the main reasons why the Argentine economy is experiencing a delicate panorama. in which it is assumed that the year will end with inflation of 180%.
For Rachedi and other economists, Milei’s proposal to abolish the Central Bank is called radical .
“Argentina is considering exporting its monetary authority from Buenos Aires to Washington, instead of thinking about how to reform the law make the Central Bank completely independent of politics.
However, the academic in this field at IE University, Juan Carlos Martínez Lázaro, told the BBC that “What Milei wants to avoid is that the institution continues to finance the government’s fiscal deficits and that it continues to spend” .
To explain it in a more didactic way, He used a hypothetical example where you have a machine to print tickets at home. .
“You would have no problem spending as much as you wanted and without any controls. This is what is happening, one way or another, to the Argentine government. The Central Bank prints whatever pesos it wants, which allows it to maintain a level of spending that would otherwise be really complicated. (…) but this it only causes inflation and depreciation Weight”.
For his part, after having triumphed in the elections last Sunday, Milei remains firm on her position to abolish the institution .
“This is not a negotiable issue” he said in an official statement shared by his office this Friday morning.