Summary
Closing the central bank in Argentina could stabilize the peso and promote ethical monetary reform, presenting a viable alternative to dollarization despite potential risks.
Monetary Policy and Central Banking
Closing a central bank would immediately freeze the money supply, stabilizing currency value by halting excessive money printing, the key driver of high inflation and devaluation.
The value of fiat money is determined by supply and demand, not central bank assets or balance sheets, functioning as an independent commodity.
Argentina’s money supply doubled from December 2023 to December 2024, highlighting the urgent need for significant monetary policy reform.
Economic Theories and Doctrines
The real bills doctrine is flawed, incorrectly asserting that banks can issue money without economic disruption by discounting real bills.
The Austrian view of monetary theory emphasizes sound money, warns against fiat currency risks, and argues that money’s value is determined by demand, not backing.
Alternatives to Central Banking
Dollarization would eliminate independent monetary policy but subject Argentina to U.S. sanctions, foreign policy, and Federal Reserve decisions.
A free market monetary reform allowing currency competition would be optimal, letting the market determine the best medium of exchange (peso, dollar, gold, silver, or Bitcoin).
Consequences of Closing Central Banks
Closing a central bank without a lender of last resort would cause a short-term credit crunch and money supply collapse, but markets would adjust without long-term disequilibrium.
To address potential bank runs without a central bank, allow them to occur and print peso notes to match fiduciary media, creating a fully backed banking system.
Historical and Practical Considerations
The argument that destroying a central bank converts bad currency to good is historically incorrect, as many valuable currencies have existed without central bank backing.
Closing a central bank would make the peso non-inflationary, potentially improving its quality as money and encouraging its use in transactions and savings.