Inflation nation… As Argentina’s economic crisis deepens, its citizens are relying on the dolar blue, aka the US dollar. Inflation breached 100% last month for the first time in decades as prices doubled. To combat that, Argentina’s central bank jacked its interest rate by 10 percentage points, to 91%, last Thursday — tacking on to a massive 300-point lift the week before.
For context: The Fed has cranked the US’s rate to about 5% from zilch over the past year, in response to inflation that hit 9%.
Not enough: For Argentina, 20 to 30% inflation is typical, but triple digits means time to hit the panic button. However, aggressive rate hikes, along with price freezes and other scattershot attempts to cool prices, aren’t working.
Dollarization nation… Argentines trust the greenback to maintain its value more than the peso. The USD has become so prevalent in the country that some experts think its circulation there is second only to the US. Argentines trade pesos for American dollars at illegal swap hubs, where the exchange rate is often cranked to double the official rate.
- Paging Washington: One of Argentina’s presidential candidates, Javier Milei, wants to fully swap the national currency out for the USD and dissolve the country’s central bank. FYI: 11 countries, including Ecuador and Zimbabwe, use the USD as their currency.
The buck still has Superman status… Concerns about the US dollar being dethroned as the world’s “Superman Currency” may be overblown. Despite its value slipping this year, the USD is still relied on as the world’s go-to currency for international purchases (think: oil trades), accounting for 58% of global forex reserves. Meanwhile, other countries’ preference for the dollar can make their own currencies weaker.