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Comment by reacharavindh | Hacker News Reader

After decades of uncontrollable inflation, I can see how relying on a foreign currency (one that is backed by the economically most powerful country) is attractive to the wider population looking for some sense of stability.

But, without the ability to control the value of their own currency, how would it work for the government to manage their domestic affairs? Would they buy a boat load of USD, and circulate it within the country to be traded for goods and services? Are there any downsides to this?

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>But, without the ability to control the value of their own currency, how would it work for the government to manage their domestic affairs?

The idea is that the stability the economy gains by using the US dollar, and the inability of the Argentine government to cause inflation by putting the currency printer on overdrive, benefit the country more than the loss of self-control from no longer having its own currency.

In Latin America, Panama, El Salvador, and Ecuador formally use the US dollar as their own currencies: They have also decided that the stability of the dollar (and ease of transactions with the US and Americans) is more important than controlling its own monetary policy. While Argentina has never before formally adopted the US dollar as its currency, a) the dollar has been the informal currency for many domestic transactions, as in many other countries in South America and elsewhere; bank loans and real estate are common examples. b) Argentina linked its currency to the US dollar on a 1:1 basis from 1992 to 2001. I suppose the electorate has decided that the country should not have abandoned the peg.

Interesting. Other than the lack of control(which in some cases may be argued as a good thing), are there any downsides to adopting the USD as national currency?

If (a big if) one accepts said lack of control as a given then, no, for a historically chronically mismanaged country like Argentina, there are no downsides.

The situation is different for every country. The Eurozone includes many Western European countries with historically better records of monetary and fiscal discipline than Argentina, that have nonetheless decided that the benefits of using the same currency as its neighbors outweigh the loss of self-control. History will decide whether this view is correct; there certainly is no shortage of economists that argue that the likes of France or Netherlands having the same interest rate as Greece or Spain is a foolish idea. The UK never was a member of the Eurozone before Brexit, and no Scandinavian EU member is, either, all actively or passively remaining outside (not including non-EU member Norway). Conversely, the Bank of Canada has several times studied Canada adopting the US dollar.

> the likes of France or Netherlands having the same interest rate as Greece or Spain is a foolish idea

Which is why countries in the Eurozone issue their own government bonds, each at a different interest rate. https://www.ecb.europa.eu/stats/financial_markets_and_intere...

The currency a country uses and the interest it pays are two different things. You could also imagine a group of countries with separate currencies agreeing to take on debt at the same interest rate, with differences in perceived risk resulting in corresponding exchange rate drift.

The downside is that you lose seigniorage (basically the "tax" the government gains from printing coin), so now the country gives that to the US and can only take money from debt and taxes

This is, of course, a different way to name the "lack of control" you mention

Important reference: how the peso-dollar peg ended in Argentina

https://en.m.wikipedia.org/wiki/Corralito

several European countries (e.g. Kosovo) use the Euro as their currency despite not being part of neither the EU nor the Eurozone for exactly the same reason.

Most of those are tiny city states (e.g. Vatican, Monaco, San Marino) that would not even have the capacity to offer their own currency. So not exactly the same reason. Kosovo is also pretty tiny, with a total population roughly equivalent to Warsaw. Argentinia has like 45 million people and a GDP that is an order of magnitude bigger than all these side channel Euro countries together. It is far from obvious weather they could actually pull this off on such a scale without official endorsement and full support from the US, which in turn is highly unlikely.

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