Javier Milei’s commitment to libertarian principles has never been in serious doubt. His ideological lineage traces back to the classical liberal tradition that prizes individual liberty, fiscal discipline, and monetary soundness. The Argentine president’s rhetoric and early policy decisions reflect a clear effort to reverse the decades of economic decay wrought by statist, interventionist governments. If Milei has not yet implemented the “endogenous dollarization”—that is, allowing people to choose whatever currency they prefer by giving legal tender status to foreign currencies that he championed during his campaign—it is not for lack of conviction but because the economic and political conditions necessary for such a transformation are not yet in place.
Dollarization, though appealing as a swift cure to chronic inflation and monetary disorder, cannot by itself resolve the deep-seated structural rigidities in Argentina’s public finances. The national and provincial governments remain burdened by expenditures that are politically entrenched and institutionally rigid. Cutting those expenditures requires not only technical efficiency but also a durable political coalition capable of sustaining reform. At present, Milei faces a legislature in which his coalition lacks the minimum votes to uphold a veto, much less a commanding majority to support his agenda, limiting his capacity to impose far-reaching fiscal restructuring. The gradual pace of reform is therefore less a sign of ideological compromise than a recognition of institutional reality.
Should the Argentine people renew their mandate for Milei’s coalition in the coming election, they will commit themselves to a path of economic recovery—a process that, given the depth of Argentina’s distortions, may well take a generation to bear fruit. If, however, they revert to the populist policies of Peronism, they will condemn themselves to a further cycle of decline. The inflation rate, currently hovering around 30 percent per year, serves as both a symptom and a warning. Despite Milei’s success in restraining spending, the persistence of inflation indicates that not all the channels of monetary financing of public debt have been closed. The fiscal-monetary nexus, in which government deficits are financed by money creation, remains an enduring source of instability despite his obvious successes in reducing the deficit.
Within this context, Milei’s exchange-rate policy deserves careful attention. By allowing the peso to fluctuate within bands that are enlarged 1 percent above and below every month, his government is attempting to steer the market toward an equilibrium—or “indifference”—exchange rate. Before that, Argentina was on a “crawling peg” system, under which Milei’s administration was devaluing the peso by 2 percent per month, at a time when inflation was higher than that. Neither policy brought the peso to a stable exchange rate with the dollar. Markets became nervous as the election approaches, and the Trump administration decided to support the peso with a commitment to purchase the Argentinean currency up to $20 billion. If the experiment succeeds, it may lead to a situation where the peso floats freely without triggering further depreciation, paving the way toward convertibility and ultimately dollarization. In this sense, the current policy can be understood as a preparatory stage for a more durable monetary regime based on market confidence rather than decree.
Argentina’s citizens must decide whether they are willing to endure the short-term hardships required for long-term freedom from inflation and stagnation.
The world’s most resilient currency board—the Hong Kong Monetary Authority—illustrates what such a regime requires. Hong Kong’s system maintains foreign reserves many times larger than its monetary base, ensuring full backing not only for currency issuance but also for potential bank conversions into foreign currency. This immense reserve cushion, combined with the credible political commitment of the Chinese government to support the territory’s financial stability, has preserved the peg even in moments of global turbulence. By contrast, Argentina lacks both the reserves and, until October 20, the external backstop mentioned above that would guarantee a stable conversion rate under a dollarized or currency-board system.
The question then arises whether the United States should view Argentina’s move toward dollarization as strategically desirable. From a geopolitical standpoint, anchoring Argentina to the dollar could deepen hemispheric economic ties and counterbalance Chinese influence in Latin America. Yet from a prudential perspective, it would be premature to fix the Argentine peso irrevocably to the dollar before the country achieves sustained primary fiscal surpluses and a stable political consensus in favor of market reform. To do so would replicate the failed convertibility experiment of the 1990s, when Argentina’s rigid peg collapsed under the weight of fiscal indiscipline and external shocks.
The lesson from that episode—and from similar experiences elsewhere—is that monetary discipline cannot substitute for fiscal responsibility. In Ecuador, for instance, a frequently quoted example of successful dollarization, the process served to reduce the purchasing power of claims against the Ecuadorian government. In Argentina, with its tradition of political representation and protection of entitlements, the experience of the 1990s was one where those commitments could not be diluted without facing insurmountable resistance. True stability requires that the government live within its means, at every level, and that the electorate understand and accept the costs of adjustment. Dollarization imposed before those preconditions are met would transform a policy instrument into a straitjacket, forcing adjustment through painful contraction when shocks inevitably occur. To repeat that experiment would risk not merely another devaluation but another crisis of confidence in liberal reform itself.
Argentina’s challenge is thus not primarily technical but moral and political. Its citizens must decide whether they are willing to endure the short-term hardships required for long-term freedom from inflation and stagnation. The British refusal to adopt the euro as currency serves as a useful analogy: the memory of the deflationary agony of the 1920s gold standard, when convertibility was restored prematurely, still shapes British monetary caution. Similarly, the German aversion to inflation remains rooted in the trauma of 1923. Nations, like individuals, are guided by their historical memories. Argentina’s future will depend on whether its people learn from theirs.
If they choose Milei’s path—anchored in fiscal prudence, market openness, and gradual monetary reform—they may in time rebuild the trust and institutional strength needed for true convertibility. If they turn back toward the populist illusion of costless prosperity, they will continue to drift. Endogenous dollarization remains a worthy goal, but it must be earned through the hard discipline of reform. Only then can Argentina reclaim its long-lost economic dignity.
Any opinions expressed are the author’s and do not necessarily reflect those of Liberty Fund.