On the campaign trail, now-President Javier Milei promised to replace Argentina’s peso with the US dollar. But, at least so far, he has failed to deliver on that promise. Instead, Milei has implemented a transition plan with the expectation of eventually establishing a more permanent monetary system, which might be something less than full-scale dollarization.

Milei’s reforms appear to be working. Before the election, inflation averaged 8 percent per month. It has averaged just 3.7 percent per month since May, and dropped to 3.5 percent in September — the lowest monthly inflation rate observed since 2021. 

On the fiscal front, Milei’s administration has managed to show a monthly cash-flow-based fiscal surplus. The risk premium on Argentine sovereign bonds has declined.

The Milei administration is also taking steps to remove inefficient regulations, including the elimination of some hereditary government positions. (Yes, you read that right.)

Given the apparent success of Milei’s reforms thus far, one may wonder whether dollarization is actually necessary. But there is nonetheless a compelling case for dollarization: it is the only long-term, credible solution Argentina has for controlling inflation.

The credibility of Argentina’s institutions and government is deeply entwined with its complex history. Argentina has repeatedly experienced policy reversals, where the officials who once protected private deposits later sanctioned their expropriation. Furthermore, the country’s voting population has shown a repeated inclination toward electing populists, even when they show clear authoritarian tendencies and their economic policies have led to crisis after crisis. The lack of institutional reliability in Argentina should not be overlooked.

Milei’s administration is not the first to introduce free-market-friendly reforms in Argentina. Other pro-market thinkers have held political influence at times. For instance, Álvaro Alsogaray was politically active for decades (from 1955 to 1999) and held positions such as Ministry of Industry, Ministry of Economics (1959-1962), and National Deputy (1986 – 1999), among other positions. Alsogaray was influential in the Carlos Menem presidency (1989 – 2001), where his daughter was the Secretary of Natural Resources and Sustainable Development (1991 – 1999).

Argentina’s historical pattern suggests that even successful reforms may be short-lived. Why should one expect this time to be different? Rather, one should work under the assumption that Argentines will eventually elect a new populist regime that is not so keen to keep Milei’s reforms. 

Dollarization is more than a monetary reform. It is also an institutional shield. It limited the scope of Rafael Correa’s populist policies in Ecuador from 2007 to 2017. Consequently, left-leaning populism was less costly in Ecuador than it has been in Argentina. Dollarization makes pro-market reforms more costly and difficult to revert because the cost of bad policies cannot be obscured by easy money.

Dollarization would curb runaway inflation and, perhaps even more importantly, strengthen Argentina’s institutions against the recurrent threats of populist policies. It would lay the groundwork for broader economic reforms, making long-term prosperity possible for ordinary Argentines. Dollarization presents an opportunity to break away from the destructive cycles of policy reversal and economic instability, offering a chance to build a more resilient economic structure.