Deep Dive
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This is planet money from epa.
We are recording. yes.
Last week, we called up video producer lucas babic to help us with a recording in benoist on florida street. Do ever buy anything on that street?
No, no, no. People who live here 真的 是 特别 厉害。 This is a tourist face, and of course, they have touristic Prices.
This tourist floor, a story, is lined with chain stores and fast food places, although people who exchange dollars and pails IT .
was potentially a big day here. Have your milla just become president of argentina and even calling for huge changes, his kind of an economic recking ball. And what he says and does sometimes impacts the value of the pay. So so we ask lucas to try to interview one of the people who exchange money here.
People, people, nobody wants to talk. The previous administration .
actively controlled the buying and selling of dollars and made exchanging money at places like these illegal. But still, many exchangers have lined the street and continue to line the street. They call out gambia. Gambia, which basically means.
Lucas finds a money exchanger who is willing to talk. And our big question, now that me lay, is president, what will that .
mean for the pay? No, the guy was saying the value, the peso was .
going to think he was predicting that in just a week's time, IT was going to fall by two hundred percent.
That's what everybody saying around here. For them, here is effect three thousand faces.
Now this prediction was made a little over a week ago as of today, when this episode is going out, december twenty years, the rate of exchange is actually closer to a thousand faces per dollar. So not quite as dramatic as the money exchange are predicted.
But even so, the pistol is dropping in value, which means Prices and stores and restaurants are going up. Salaries are worthless. It's harder to save any money. We ask the money exchanger, what is he going to do as the piece drops.
He give us a second to show us.
He says he's worried about .
the people because things like .
buying like a kilo of meat that is about to get way more expense.
It's gonna be painting because people, we would not have money, basically.
Now, new president millay has a fix for all of these issues with a local currency, really for the whole economy. He wants to bring out of the shadows what is happening here on the street. But instead of people exchanging a few pisos for dollars here and there are these little exchange shops, instead, all of argentina would show up and exchange all of the country's paces, walk away with stacks and stacks of dollars.
Male says he wants to delhi ze argentina. That, at least in part, how lay won the presidency, which leads us to one more question for the money exchanger, the guy who basically every day turns basics into dollars.
does he have any questions .
about how dollar zing will work?
My exchange says, I don't know, I don't know.
He's like, no, no man that's like for economies I have no idea.
So yeah, dol zing, easier said than done.
Hello, and welcome to planet money and AManda .
ironic amErica baris .
argentina has been on a decades long search for economic stability, and IT always seems to be out of reach. So in a country where the local currency is in free fall, promising to replace that currency with the U. S. Dollar can seem like a magical solution.
Argentina's new president, one in part by promising to do just that, two dollars to scrap the basel and replace IT with the relatively stable predit, almost the lightning ly boring U. S.
Dollar today on the show. What does dollar ing even mean? Why delorier how to do IT IT work?
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after the fact argentine's new president heavy delay, is a political outsider. You might have seen pictures of him and his bright blue eyes and these surprisingly bushy cyberia. He's an economist, far right. And when he was on the campaign trail, one of his promises was to dollar ze.
In this video from september, male is saying the decision to della ze is SAT and it's not onna change gonna move.
The big idea behind dollar zing is not all that complicated. Your country has a currency, the rupee, or the euro or the peso, whatever. And one day government really does say, come exchange your old currency for U.
S. dollars. Your old money is no longer good. Starting now, only U. S. Dollars work.
There are a lot of reasons to dealer zed. Currently, there are more than thirty countries in the world they use the currency of another country. For argentina. It's an idea for fixing an economy that's been broken for decades.
So people kind of have lost faith in their own currency.
Yes, argenton don't remember the last time they had faith in their currency.
This is evan warning. He is an expert and delorier ing and an argentinian. He's got kind of longest hair, plays the guitar. I'd say he seems a little bit hippy, a whole lot macroeconomist.
We spoke to him at his office at M. I, T. And scattered across Evans desk are dollars epcs and the pack clinics made to look like hundred dollar bills so you can.
you know, act like your ridge and blowing your nose .
on one hundred dollar bill. I guess this is what makes a macroeconomist lah. Anyway, evan comes by his passion for currencies. Honestly.
I live through two changes of currency where the currency change, name changed pictures on them, they took some zeros off.
Imagine one day the hundred dollar bill in your wallet, the government now decides its worth one dollar. Or instead of dollars, you get some purple and orange money, got pictures of like Janet yelling, or be on a or spider man on IT. Evan says most argentinians have lived through two or three or four different currencies.
Yeah, so they become kind of a collectable thing. So some people have desks, uh, with the glass on top and underneath the glass they have you know maybe four generations of different currencies.
wow. So the idea for like an average argentina and like the idea of changing currency is not a strange thing .
to do IT isn't were all kind of armchair macro o economists that have lived through those uh unusual things and they're not unusual .
for us anymore but fully dozing. That would be new. And one of the reasons millay wants to delhi ze is because inflation is a raging out of control, dumped fire at the moment. It's over one hundred and fifty percent a year.
It's so high because the government has been basically printing vessels to cover its expenses. Deli zing would rain that in.
The idea behind delorier ation is, if you can take away that temptation, the the money printing press, it's like tying yourself to the mask so as to not go towards the sirens call.
And the sirens call is print more. People print more.
Yes, exactly. That's the best argument for dollar zing. That somehow dollar zing is a way to control yourself. So you don't overspend. We call IT a commitment device.
a commitment device because when a country takes on a new currency, they can't print more money. Only the U. S.
Government can print dollars. So how exactly would argentina dollar ze? Let us, along with evan, walk through the steps that a country would need to pull this off. Okay, let's say president millay calls you up and says, okay, you an tell me a few things that I have to have in place to be able to dolero ze argentina. What do you say to him?
Is IT Better to say first, don't do IT you can start with, don't do IT I would say, probably don't do IT trying to talk out of IT.
but let's say you can't to swade president millay. He is a really insistent guy. He is sure delorier ing all rescue his country's fAiling economy.
So how do you do IT? Eban says there are basically three steps. Step one.
yeah, the first thing is, if you are going a dollar eyes and you don't have the dollars, it's obviously a problem. So you need to get the .
dollars for a step. Government needs to get the dollars. great. Most likely the country need to borrow money to get dollars. But argentina does not have a super great track record for paying back their loans. Let's say they do find some lenders and then they're going to use those dollars to replace all of those places.
Now there are some disagreements on what is the exact right number of dollars, but a few economists have load in amounts of around forty billion dollars.
Forty billion dollars would basically cover th Epaces a nd c irculation a nd p aces a nd s avings a ccounts, as well as some of the other debts of argentina central bank.
Then evan says, the government picks a day when it's all gona go down. This is step two, the day that starts, let's call IT delorier ation day. I assume when you .
say you go to convert, that's like people go to the bank, they hold their paces. And then there's like a moment where they hand in th Epaces a nd t heir h and a t s ome d ollars e xactly.
exactly. That's that's exactly how would happen.
And if that forty billion turns out to be the right amount and all goes well, here's what IT could look like for argentinians. Their salaries should stay about the same, but they be paid in dollars, and that kilo of meat would still be affordable, just now Priced in dollars.
The timing here is really key. Plans to dollar ze might make people worry that they need to dump their pizzas and fast. That could cause the value of the peel to drop in anticipation of delorier ing. So one way to go about IT is to do IT as a surprise. Don't tell people when toleration ation day .
is gonna happen. If you surprised everyone with dollars and converted the next day, that would be something you can do. And that's a little more how delara worked in equal.
equal officially polarized in january of two thousand. At the time, the country was in terrible economic condition, high inflation, huge deficits, devaluing currency. And the big international lenders didn't support the idea of delhi zing. So the equal kinds rung and announcements on everyone surprised the conversion rate between our currency and the dollar is set. We've delighted at first.
this was considered such a bad idea. Within two weeks, the president got kicked out, but the next president agreed to see the whole plan through. By the end of the year, the transition was essentially complete.
So recap, step one, get dollars. Step two, set a date and a rate. The next step, step three, the country needs to stop spending more than IT brings in. IT can no longer run a deficit if he wants to maintain this whole dollar zing endeavor.
an important step, that is, you're going to have to get the financial fiscal deficit situation in in order. Otherwise, eventually you're gna need to get exit dollarisation and go back to printing pisces.
Those are the basic steps to dolorifuge. Now the thing is, argentineans have and use a lot of dollars already. That's because the government has mismanaged the economy for so long. People don't trust the government and they don't trust the pay. So that's why people who can save dollars do, and they have four years.
We are so used to this.
This is maDiana luci. SHE is a professor of sociology at the national university of sand Martin in winos. Des SHE says people are so used to dealing in dollars is .
something that we learn from our parents that we have been doing for a very long time, that it's not extraordinary us anymore.
We called maDiana because he covert table called the dollar, how the U. S. Dollar became a popular currency in argentina. SHE spent years trying to understand the cultural relationship argentinians have with a dollar.
When you look at ads, you will see all apartments, houses and everything. Prices are setting, dollars are published, u. dollars. And transactions are made in us. Dollars.
mostly in cash. When we visited earlier this year, you could really see what marianas describing here. Dollar, dollar bills. You you know the small things, coffee, lunch, buying a souvenir mug. You pay for those with PaaS, but for some big things, an apartment or luxury car, you pay for that in dollars.
The idea that if you have dollars instead of having basis, you protect yourself from the incentives de at least part of the insert tude that comes with, uh, government decisions. It's something that helps you to avoid the problems that come with their decisions and and mostly crisis.
President lay once who disrupt decades and decades of poor economic decisions. And as a political outsider, he argues his administration will be the one that can finally, officially, fully delorier the country.
And so I think that for for some of the people, this idea of glorification has this power now, the power of the golden tickets, like we have this golden ticket that can solve all our problems.
Coming up after the break, we read the fine print on that garden ticket, and there are my piece of problems.
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Now to recap for argentina to dollar ze, our economist evan warning, says the government will need dollars, a date and a rate for making the exchange and to get the country's finances in order, let's say, president millay does of stuff hypothetically, he delorier es argentina. Then what?
Unfortunately for him, the aftermath of delorier ing is very complicated. There are all sorts of problems that can pop up. Here are three big ones.
Number one, when argentina adopts the dollar, you know, as is off to the mass, the country would no longer print its own currency. That means IT would lose what's known as senior IT. That's money IT earns when IT prints money.
So there's a benefit for the government of printing money. It's it's very cheap physically to print money related to its value and that that the benefit the government gets.
And if argentina to dearie, they lose the ability to have senior age because they're not like physically making their currency anymore.
exactly theyd give up a cheaper of financing part of the government budget, which every you, almost every country has.
Here's how senior age works, let's say printing a one dollar bill costs ten cents. Senior age is the difference, the ninety sense the country puts into the economy when IT prints that dollar. Now of course, this cannot get out of control. They can print too much fuel inflation. But this is one of the benefits of being able to print your own money and you lose that when you .
deli ze complication number two, let's say argentina can actually raise that roughly forty billion dollars, we mentioned earlier. But malaise, goals ahead and dollar rises with just ten billion dollars sitting in the central bank that could lead to a recession. Maybe argentinians lose their jobs, can afford to pay their bills, and so they need to dip into the stash away. Dollars .
argenton have always been saving and have a bunch dollar stashed under the matters. The richest st. Argenton have dollars in the financial sector. The new to why across the river or in the united states are elsewhere.
Not ideal to have to pull the savings out from under the mattress. But if you're well off, this is an option for you. The problem is, nearly half of all argentinians live below the poverty line. They don't have that bunch of dollars stashed away. In this scenario, deli zing would likely lead directly to even more inequality.
Next, the third complication, so say, argentina t hides itself to the bus, and after a few years, gets a little carelessness. Art spending, you know, more than they have, starts running a deficit.
And at this point, I would be useful if there was some way for them to, like, heat up their economy, get people to spend more money. Usually that would mean that the banks would make IT cheaper to borrow. They would do that by lowering interest strates.
So one of the big problems of delorier ing is you basically lose the capacity to influence the economy. So we all hear about the fed in the us. Uh, lowering rates are raising rates to try and control to minimize recessions. When you dollar ized, you give that capacity up.
You can't change your interest rates. If you dollar ze.
it's very difficult to do IT in the same way.
Why is that? Well.
because basically the interest rate will be roughly been down by what the U. S.
Interest rate is if argentina writing a deficit and they can't really set their interest rates higher, lower, they can't print money, they are kind of stuck. It's possible that something truly weird could happen. And ivan knows this because IT happened before .
IT was the early ninety ninety. Argentina was dealing with high inflation, at times hyper inflation. So the government introduced what they called the convertibility plan. The government tagged the piso to the dollar at one to one, one piece shell equal one dollar.
Evan says that meant that the country was practically dealing zed. An argentine's government was still running a deficit. So IT started to run out of money and some of the provinces were going broke. So the provincial governments started doing something CAD.
It's funny the issue something that they call a bone but he has the exact shape of a bill of a currency of a pixel um and because legally speaking, you're not supposed to issue currency if you're A A province that's the federal governments job so they call debt cancellation bonds and it's got a debt cancellation bond.
But actually in practical sense it's at a new currency. It's kind of like an I O U dollars.
exactly, exactly. And they try and spend IT at the store. And initially, you would think, well, maybe the store won't take these, but you know what? If start doesn't take him.
they'll have no customers. So because the provinces are running out of money, they start essentially printing their own currencies and paying government employees with these I O U dollars. Government employees go to the store and they spend their I O U dollars there more and .
more people than take IT. So that's how I think IT gets circulating. And soon enough, you're getting paid and you're accepting payment in this other thing and eventually can crowd out the dollar.
And is this a risk of dollar zing? Like, let's say one of the provinces was like, actually, we're running out dollars. We don't have anything.
We can't power from the government. You don't have anything. We're just going to make our own money.
I absolutely think this is I absolutely think this .
is basically the last complication is this if a country continues to run a deficit, but can print money, can set interest rates, other currencies might just sneak back in.
So those are some big complications. Doors without enough dollars could create more quality, and argentina could lose some of the benefits of printing its own currency from senior age to the ability to control its monetary policy.
On december tenth, twenty twenty three, hava mili became the president of argentina.
He did start his presidency addressing some of his campaign promises. But there was one thing he didn't mention, deli zing. So that's right. He did not immediately dealer's zed, the country.
perhaps it's because his party has so few seats in congress, nowhere near a majority, and getting support for dollar zing could be pretty hard. Perhaps he heard economists like you on warning and realized just how many complications there would be. Or maybe in a few years he can fix argentina's economy enough.
Try again. Or maybe, just maybe everyone will will go to bed one night, wake up the next morning and surprise. Argentina, you've been deli zed.
We've covered argentina economic crisis preelection through the lens of a tango competition, and we've made shows about how people turn to the dollar after a currency crisis in bedwell a few years ago, and that time that ecuador dollar zed. The links to those episodes are in our show notes.
This episode was produced by Samuela horse caller with help from day bluecher and willow rubin. IT was engineered by nisha highness that checked by seriosha and edited by just jing. I let's gold mark as our executive producer.
Special thanks again to Nicholas ideas and Edward gillan.
I'm eric baris and i'm ama. ranchito. This is M. P. R. Thanks for listening.
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