Economics Nobel laureate Paul Krugman recently stated that Argentina might be better off adopting the euro instead of the U.S. dollar amidst the devaluation of the Argentine peso. Krugman argued that Argentina has almost twice as much trade with the European Union as it does with the U.S., stating that the euro would suit them better.
Nobel Laureate Paul Krugman Talks Dollarization in Argentina
American Nobel laureate Paul Krugman recently issued his opinion about the possible dollarization process that Argentina might face later this year. Krugman, who won the Nobel Prize in Economic Sciences in 2008 for his analysis of trade patterns and the location of economic activity, argued that the dollar might not be the better substitute for the Argentine peso, given the trade realities of Argentina.
Answering a post where Brad Setzer — an economist who worked at the treasury department of the U.S. — compared the circumstances of the U.S., Canada, South America, and North America as “optimum currency areas,” Krugman stated:
Argentina does almost twice as much trade with the European Union as it does with the U.S. If anything, they should adopt the euro.
Setzer declared that Latin American exports were tied to the Chinese and global commodity cycle instead of the U.S. cycle, detailing that the U.S. dollar was not a commodity currency.
These statements answered the issue presented by Arpit Gupta, an associate professor of finance at New York University’s Leonard N. Stern School of Business, where he speculated about the possible drawbacks of the U.S. promoting the unification of the currency towards Latin America and “trying to more actively push for a common dollar zone along the lines of the euro.”
U.S. Dollar as a Lifeline
The dollarization debate has intensified in Argentina since August 13, when Javier Milei, a libertarian candidate, won the preliminary elections with more than 30% of the popular vote. Milei’s government plan includes, among other proposals, cutting state spending by reducing the number of ministries and reducing inflation and devaluation by adopting the dollar as fiat currency.
Just last week, the Argentine government had to devalue the official exchange rate of the peso, with it reaching 350 pesos per dollar. But the unofficial and parallel exchange rate of the peso, called the “blue” rate, reached almost 800 pesos per dollar, disrupting the pricing of goods in retail stores and causing Argentines to seek refuge in stablecoins.
Milei had stated before he had the resources needed for the dollarization of Argentina, having reached an agreement with undisclosed third parties.
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