Argentina’s far-right candidate for the presidency, Javier Milei.MATIAS BAGLIETTO (Portal)
The proposal to burn down Argentina’s central bank to reduce inflation is one of the most controversial proposals from the anarcholiberal candidate for the Argentine presidency. According to this idea, the institution is primarily responsible for the inflation problems in the southern country, which would justify its abolition.
The existence of a central public bank triggers strong opposing reactions among members of the anarcholiberal community. For its members, the central bank is another expression of the power that a government imposes on its citizens through the exercise of a monopoly on money creation. Another fringe of the Great Leviathan, declared enemy of anarcholiberalism.
However, proposing to “fire up” a central bank on the premise that it is the cause of inflation is as wrong as proposing to ban cars because they cause fatal accidents. Under this premise we would be giving up a very useful tool because some people do not act responsibly when driving.
Throughout history, the regulation of monetary and financial systems has evolved through trial and error. These systems have had to adapt to financial innovation, meaning that structures that worked – to some extent – in the past, such as the gold standard, are no longer applicable today. The trust system on which the modern financial system is based has led to the need for an institution responsible not only for managing the money supply through instruments such as interest rates, but also for ensuring insurance through the banking sector. responsible for 95% of money creation in an economy.
It is true that in countries where the central bank does not achieve clear inflation control objectives, economic imbalances occur, inflation being the largest of them. However, assuming that monetary stability would improve without a central bank is tantamount to assuming that we would live better without vehicles.
The most important tool of a central bank in its daily work is the creation of trust. Central banks are very much communication agencies. Every word of their governors, presidents or directors is carefully analyzed, as if the journalists were preparing a text commentary in Spanish class. Trust is important. Without them nothing would work, because the value and stability of a currency that the central bank “sells” to us ultimately depends on what we think it is worth. Faith based on trust is the foundation of everything, and when that trust fades, values collapse and prices rise.
The money we use in our daily lives comes in two main forms. On the one hand, there is money that is “manufactured” or created by the central bank. On the other hand, and more importantly, is the money generated by commercial banks. Both are expressions of the same reality for those of us who use cash or deposits indifferently and have a face value that we rarely question because we trust it. That’s why we call it fiat money. However, your purchasing power is another matter. If money in circulation is not adequately backed by the issuing entity, its value decreases relative to other assets, leading to increased inflation as distrust increases. Therefore, the daily task of a central bank is to create and maintain confidence in the currency, both in its own actions (managing monetary policy) and in the actions of those who act under its umbrella, the commercial banks (control and regulation).
History provides us with significant examples in this sense. From currency devaluation by governments faced with metal shortages, to episodes such as currency competition such as that which occurred during the Spanish Civil War, when the Republican losers wiped out their savings because the winning side did not support the other’s peseta in the country. Furthermore, the American banking crisis of the 1870s teaches us that the value of a fiat currency is inextricably linked to the credibility of its issuer.
Belen Trincado Aznar
Here lies the crucial dilemma. History has taught us that a financial and monetary system without a regulator and lender of last resort risks collapsing and plunging society into chaos. However, an unaccountable and untrustworthy regulator and lender of last resort can also cause chaos. The solution that emerged from this trial and error process was the existence of a central bank whose actions promote trust through its actions and statements. It is important to emphasize that this awareness of the actions of a central bank is not that old. I can tell he is younger than me. The crisis of the 1970s was due in large part to the irresponsible actions of certain central banks in the previous decade, which caused their economies to plunge into an inflationary spiral, undermining confidence in the stability of their currency. The lesson learned from this experience was clear: central banks needed to be independent and clearly define their objectives. Your work should not be subject to the whims of those who control financial policy. Experience shows that if this succeeds, trust in the central bank is strengthened and inflation falls. The graphic accompanying the text is just one example of the numerous studies that have been conducted on this topic and it appears that the consensus on the matter is solid.
So if the anarcholiberal candidate really wants to eliminate inflation and stabilize the currency, he must stop proposing exotic solutions that have certainly cost him hundreds of thousands of votes. They must understand that the key is for citizens to trust their political institutions and their currency. This implies, among other things, that the central bank becomes de facto and de jure independent. Burning it means not depending on the decisions of a governor, because the only thing it guarantees is that the accent of whoever is in charge of the new currency in Argentina will be just as similar to Gardel’s mine is Woody Allen’s. The text comments would then be made in a foreign language.
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