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Comment by neither_color | Hacker News Reader

Several countries already use the dollar like El Salvador, Cambodia, Ecuador, Panama. Cambodia and Panama use local currency in sub $1 amounts only, and El Salvador and Ecuador were exclusively USD until E.S added BTC, but I know from locals there that it's rarely used and USD is still king. Argentina wouldn't be the first but it would be the biggest. My question is what happens when/if a country this big tries to dollarize? Will there be a huge demand affecting USD rates? Would we just ship them container loads of banknotes? Does the US even want this and can US officials just say no?

Bonus question: Why not Euros?

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Totally not expert opinion on the Euro question: I had the same thought and as with USD there are countries that singlelateraly adopted the Euro. The Euro also seems similarly stable. The only differences I see are:

Pro-Euro: Euro already is controlled by a wider range of countries and there is some incentive to match monetary policy to accommodate those wider circumstances. So a policy is less likely to just support a single countries unique situation and conflict with Argentina's situation.

Pro-USD: USD is already more widespread in South America and actively being used in Argentina right now. This advantage is very practical and concrete right now and trump's all else

I'd add that the US is generally quite in favour of dollarization even though the Fed only cares about the US and the EU is only in favour of countries adopting the Euro via it's accession process and adopting its macroeconomic rules. Certainly the ECB has no incentive to consider Argentina's economy when making monetary policy decisions, and if anything might take the opposite stance that it's a competitive threat to Eurozone trade.

> the Fed only cares about the US

I presume by Fed you mean the not-government 'federal reserve' which is a contractor to Congress which tinkers with monetary policy and sets the price of money. Federal Reserve quietly provided bailouts to Europe in 2008.

New York Times article,

  '“an open facility where European banks could come and get dollars.”
  So began what would become the biggest United States government bailout that most people do not know anything about.'

https://www.nytimes.com/2014/02/24/business/feds-aid-in-2008...

But they did so because the European owned banks were active in the US serving US customers (and solvent enough to repay) which is why they had the dollar obligations they needed to borrow to meet in the first place.

Argentina or Panama having a bit of an economic slowdown whilst the US is growing nicely isn't the Fed's problem: the monetary policy decisions will only take into account to the monetary policy needs of the US, and it's not particularly in the interests of the Fed to bail out Argentine bank reserve shortfalls unless the contagion is likely to hit the Us either.

At the time, the law authorizing private bank contractor 'federal reserve' didn't authorize those European actions.

There is also something to be said about who is the larger trade partner. If you do more trade with the US than the Eurozone, makes more sense to choose the dollar.

> Pro-USD: USD is already more widespread in South America and actively being used in Argentina right now. This advantage is very practical and concrete right now and trump's all else

this needs to be repeated. USD is already the way of doing business in the ARG, and this is essentially just calling it what it is.

this is also seen as a way to stabilize the back-and-forth economic choices that make the currency terrible.

makes sense in theory, but they're an export economy, and a strong USD will make it hard sell beef and mining products.

An Argentinian could probably explain this better than I can, but there's already a parallel dollar economy in Argentina. These "blue dollars" have a semi-official exhange rate and everything.

https://bluedollar.net/

https://es-m-wikipedia-org.translate.goog/wiki/Mercado_negro...

Not an argentinean, but I don't think that's the right way to look at it.

You can exchange dollars in any country and in many you can directly pay in stores if the storekeeper is flexible. You wouldn't call that a parallel dollar economy.

The only additional point in Argentina is thay they have an official exchange rate that is way way different from the true exchange rate (ie the one that arises from demand and supply). That's why you can exchange dollars through the official channels and get, say, 500 pesos, or you can exchange from an unofficial one and get 1000 pesos

The Blue dollar refers to the grey market exchange rate currently hovering around 950 Argentina Pesos to 1 US Dollar. The official exchange rate is set at about 350 to 1. It is actually quite hard to spend US dollars directly in Arg. However it is common for both foreigners and Argentines to use grey market money changers at the blue rate. Argentines are only allowed to purchase a limited number of US dollars at the official rate each month so if they want to travel or protect the value of their savings from the extreme inflation they need to use the grey market to do so. The Blue dollar exist because the current government artificially pegs the peso at the lower rate.

Re: Euros, I think that comes down to their trade being Brazil, China, and the United States:

https://www.statista.com/statistics/1331248/main-trade-partn...

Pegging to the yuan might be the more interesting option since that has considerable risk but also I’d imagine China would look very favorably on it.

>Bonus question: Why not Euros?

Euro is far, also Euro is far more left leaning (I guess) than the US (even democrats in the US would be considered right form the center in Europe). But the real issue would be the lack of currency reserves - least I'd think Argentina might have more Dollar notes than Euro ones.

What on earth is a left leaning currency?

Clearly, a left-leaning currency is one supported by an economy based on facts, and a right-leaning currency is supported by an economy based on feelings.

I don't know how this helps, though.

Fact:

Argentina's peso ("left-leaning fact-based" currency) went from worth 0.35 US dollars to now 0.0029 US dollars in less than 5 years.

The Euro is woke, don’tcha know /s

The Euro and the eurozone (and the countries represent by) are related, along with its monetary policies. Similar to the USD (the dollar) - US is part of the name.

The elected president is on the quite right side of the spectrum, so associating with any left wing policies/countries would be very unlikely, given Argentina's currency dropped massively during the last years. He won vs a candidate who used to be a financial minister overseeing several hundreds percent inflation.

How does Europe being left leaning matter? The exchange rate is basically as stable as USD... Or do you mean it's just because of the strong Milei's ideology?

Nothing to do with the EUR/USD rate, of course. I very much doubt the 'new' president would even hear anything left leaning, he is considered rather radical.

> Euro is far

Technically, from a geography point of view, euro-using countries as official currency are closer than USD: https://eur-lex.europa.eu/EN/legal-content/glossary/outermos...

(I.e. French guiana's currency is the Euro)

If we are to go in such technicalities, Ecuador is closer.

The distance - far/close matters when it comes to the trading partners more than anything. The US and Brazil being the biggest ones[0], and the trade is in USD.

[0] https://www.indec.gob.ar/uploads/informesdeprensa/i_argent_0...

> even democrats in the US would be considered right form the center in Europe

That used to be the case but it is true no longer, current 'Democrats' (between quotes because the DNC seems to be as democratic as the DRC from what I've seen) are comparable to centre-left parties in north-western Europe. The more activist wing of the 'Democrats' is comparable to socialist and communist parties in e.g. Sweden and the Netherlands.

> local currency in sub $1 amounts only

I've been in favor of abolishing the minting of physical US pennies, but I suppose this is one argument against it: other countries that use the dollar might actually find pennies to be useful.

The good thing for Americans about coins is they are minted and issued without incurring debt. Notes are printed, sold to 'federal reserve' for pennies per sheet, then loaned into circulation which increases the debt which Americans then pay or will pay.

Notes as money is bizarre share-cropping, and USA people would be reasonable to advocate for coins in larger denominations like 10 50 and 500 to avoid borrowing notes into existence.

https://www.usmint.gov/news/inside-the-mint/how-coins-are-ma...

"Federal Reserve Banks buy coins from the Mint at face value."

If you're going to propose to rework the entirety of US fiscal policy, please actually recognize what you are proposing and treat it seriously.

National debt is a primary tool to support growth.

Like a credit card, national debt pulls foward spending at the price of paying interest to bankers.

Breaking glass windows also increases growth (or GDP) because it forces spending to replace the broken windows. Similar GDP increase when USA builds missiles to blow up bridges (over there somewhere) and later provides funds to US contractors to rebuild those bridges. GDP number go up, along with debt and interest costs.

All money is debt. Money is synonymous with debt. Everything you call money, including coins, notes and numbers in a proverbial spreadsheet is a record of a liability of some entity (i.e. debt). Coins and notes are liabilities of the central bank

US coins are not debt. Coins are minted and issued as fiat then sold at face value to 'federal reserve'. Modern US notes are debt, which is why the paper has the word 'note'. Compare that with earlier paper dollars which had the word 'certificate' as in Silver Certificate - they were backed by metals.

This sounds like a difference without a distinction assuming non apocalyptic scenarios.

The difference is US dollar notes have a liability which is paid to banks 'federal reserve' and coins do not have liabilities so coins don't cost USA when issued. Coins are just issued. Notes (paper dollars and electronic) are loaned into existence and USA pays interest to federal reserve for the USA's own money.

The coins are bought with newly created money which creates the necessary liability side of money creation. All that happens is the fed spreadsheet asset is swapped for a physical token with the same asset value. What most people think of as money is the asset associated with an asset-liability pair.

Even if it's not recorded as such, money is always a liability to its issuer, otherwise there would be no point issuing it.

> The coins are bought with newly created money which creates the necessary liability side of money creation.

Not in USA. US coins are fiat without a liability. This leads to people every few years thinking they discovered that coins are just fiat and then recycling the idea of minting some $1 trillion coins and paying off the federal debt. It is technically possible, there would be no debt for the coin issuance, and would likely lead to nobody willing to purchase future USA debt issuances.

https://www.investopedia.com/terms/t/trillion-dollar-coin.as...

Really bizarre are the gift shops at the US Treasury's Bureau of Engraving and Printing where they have tours to watch the printing presses. They sell to tourists uncut sheets of dollars that they print. But they first buy the sheets at face value plus the printing costs from 'federal reserve' who bought the sheets at pennies per _sheet_ that Treasury just printed.

https://www.federalreserve.gov/aboutthefed/chapter-5-federal...

  "When purchasing the notes, the BEP authorizes the Reserve Banks to charge Treasury's general account for the face value of the notes plus the cost of printing."

> money is always a liability to its issuer

No, though prove me wrong and show us the coin liabilities on USA balance sheet somewhere.

Since taxes can be paid in coin, it's clearly a liability to the treasury regardless of whether it's recorded on a balance sheet as such.

In practice a coin is a token that represents a liability at the Fed much like a deposit. That token can be used to claim an actual deposit at the Fed (by agents, not little people, obviously).

I'm not aware of a law that requires a coin be bought by the fed at face value. It just seems to be the historical norm. If you're aware of such a requirement please let me know.

In summary, the coins are not the "money", they're just tokens that for historical reasons the fed buys from the treasury at face value and can record at face value in their balance sheet. It could in principle just as easily be the case the fed is not required to balance with anything from the treasury (e.g. not T-bills) against new money creation - they're just forced to hand over the deposits to the control of the treasury. The net effect would be exactly like the coin case (hence the trillion dollar coin nonsense).

I don't think the countries using US currency bother moving coins worth less than $1 anyway. They mint them themselves.

Montenegro uses Euros (always did) and they seem to be doing just fine. U.S. won't say no because for U.S., it means in effect getting a no-interest, indefinite duration loan from Argentina (free money).

Argentina has been here before, in practice: https://en.wikipedia.org/wiki/Convertibility_plan

It lasted about 10 years and was eventually abandoned. TLDR: "Simply put, the dollar peg overvalued the peso in the rest of the world, especially against a weak euro and the Brazilian real, reducing Argentina's competitiveness and compounding the account deficit."

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