Argentina is contemplating major economic reforms, including "dollarization."

The new leader of Argentina, President Javier Milei, has taken a series of aggressive steps to reform the country's economy since his inauguration on December 10, and, according to senior officials in his administration, he is ready to fulfill his promise of "dollarizing" the economy.

Miley took office during a period of high inflation levels, partially provoked by a government that had been printing money for many years to finance expenditures significantly exceeding revenues.

As an economist by education, Milei describes himself as an "anarcho-capitalist" and libertarian, promising to reduce the size of government and take drastic and even painful measures to achieve economic stability in the country.

“Our country demands action, and immediate action.”- he said in his inaugural speech, according to the Associated Press.“The political class has left the country on the brink of its biggest crisis in history. We do not wish to make the tough decisions that lie ahead in the coming weeks, but unfortunately, they have left us no other choice.”

In the days following the inauguration, Milei began implementing measures that he believed the country's economy required, including an immediate 54% devaluation of the peso, Argentina's currency, against the US dollar.

At the same time, Milei's government canceled the price control measures introduced by his predecessor and announced cuts to fuel and transportation subsidies. As a result, prices for consumer goods skyrocketed, while inflation was already very high.

Miley also announced the merger of the country's ministries from 18 to nine, and the number of secretariats - levels of government below the ministries - from 106 to 54. His administration also canceled numerous government labor contracts and significantly reduced government advertising in the media.

In the near future, the consequences of Milei's actions will accelerate the pace of inflation, which is already exceeding 100% per year. With the devaluation of the peso and the removal of price controls, ordinary Argentinians are likely to rush to exchange their existing pesos for goods or foreign currency, further driving up prices.

Officials from Milei's government refer to these preliminary steps as emergency measures aimed at gradually ending the cycle of clumsy inflation, primarily by reducing the government's fiscal deficit.

However, experts warn that in the case of such a severely disrupted economic situation as in Argentina, measures that might curb inflation under normal conditions may not be as effective.

Milei surprised some observers by appointing Luis Caputo as Minister of Economy. The former president of Argentina's Central Bank, Caputo seemed an unexpected choice, considering that one of Milei's campaign promises was to abolish the country's Central Bank.

At first, many assumed that Caputo's position as Minister of Economy signaled that Milei was not serious about replacing the Argentine peso with the US dollar as the country's currency. However, in an interview with La Nacion last week, Caputo confirmed that dollarization remains part of the administration's plans.

"The goal remains the same: to achieve dollarization," Caputo told the newspaper. "This is the president's objective, which he pursued during his campaign. The president is not lying. I want to make that clear because we need to have a real contract with the people."

Steve Hanke, a professor of applied economics at Johns Hopkins University, who advised the Bulgarian government on a similar policy shift in the 1990s that successfully ended hyperinflation in that country, stated that there is a clear theoretical roadmap for further dollarization.

"First of all, the issuance of pesos should be frozen, and within 30 days, pesos should be freely convertible to US dollars without restrictions," Hanke said.

“After this 30-day period, a fair value assessment must be conducted,” he said. “Then the next key step must be taken.

Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, said she is not confident that Argentina will be able to successfully implement dollarization, given the current turbulence in the economy and the likelihood of it worsening before it improves.

“This is a country where prices will be uncontrollable and people will take to the streets to protest because the situation will be even worse than it is now,” said de Bolle. “I’m not sure how the political support for Milei’s government is holding together, so this is an absolutely chaotic situation. And you’re going to introduce the dollar in this environment?”

She pointed out that currently the Central Bank does not have enough dollars to convert its remaining peso funds.

“You know, Argentina doesn’t even have dollars for this right now, not to mention a more chaotic situation than the one they are currently facing. So, as I said, it’s going to be a mess... It’s unclear how they will get out of this,” she said.

However, Daniel Reisbeck, an analyst at the Cato Institute, a libertarian think tank in Washington, believes that the uncertain future of the Argentine economy argues in favor of immediate dollarization. The longer the government waits, the worse the fair market exchange rate will be when dollarization becomes inevitable.

Regarding concerns about the lack of dollars in Argentina to support changes, Reisbeck stated that significant sectors of the economy are already effectively dollarized. For example, he mentioned that 80% of used car sales occur in dollars, and a similar percentage applies to the real estate market.

"In Argentina, there are enough dollars. People have more than 50% of GDP either under their mattresses, in safes, or abroad," he said, referring to data from the National Institute of Statistics of Argentina. "So there are dollars available."

If the government establishes a fixed exchange rate at which the Central Bank will exchange dollars for pesos, both currencies can simultaneously circulate in the economy for a fixed period, until the peso is gradually phased out of circulation.