The Trump administration is exploring ways to promote greater adoption of the US dollar as a primary currency in response to global de-dollarization trends. This policy discussion has entered a substantive phase, involving multiple government agencies and consultations with leading dollarization experts.
Officials from the Treasury Department and the White House met this summer with Steve Hanke, a professor at Johns Hopkins University and an expert on dollarization, to discuss policy implementation strategies. Hanke noted, "This is a policy they are taking very seriously, though it remains in progress with no final decision yet."
Latin American countries are viewed as the primary targets for dollarization. Policymakers and economists consider Argentina a leading candidate due to the frequent devaluation of its peso, though both US and Argentine governments deny active consideration at this stage. Other potential targets include Lebanon, Pakistan, Ghana, Turkey, Egypt, Venezuela, and Zimbabwe.
The dollarization debate coincides with US involvement in Argentina's market crisis, including a recent $20 billion financial aid package from the US Treasury. This timing has raised questions about Washington's strategic intentions behind promoting dollarization.
**High-Level US Push for Dollarization Strategy**
The Trump administration's interest stems from concerns over reduced dollar usage in emerging markets. Hanke revealed that a "political figure" connected to the White House explicitly expressed these concerns during an August meeting.
"The political figure made clear there's high-level interest in strengthening the dollar's global role," Hanke stated, adding that dollarization aligns with broader efforts to promote dollar-backed stablecoins. "Senior officials demanded thorough research on all related issues, which is why I became involved."
Hanke participated in two in-person meetings with government officials in mid- and late August, attended by senior representatives from the Council of Economic Advisers, National Economic Council, and National Security Council. Treasury officials and White House political figures joined the second meeting. White House spokesperson Kush Desai confirmed the meetings but emphasized no formal decision had been made.
**Argentina as a "Focus Case"**
Argentina has long been considered an ideal candidate for dollarization. The country previously maintained a dollar-pegged "currency board" system from 1991 to 2002, which collapsed after its 2001 sovereign default. Dollarization was a key campaign promise by President Javier Milei in 2023.
Argentina's Economy Minister Luis Caputo recently ruled out short-term dollarization, citing insufficient dollar reserves, but left the door open for future consideration. Jay Newman, a key figure in Argentina's debt disputes with hedge fund Elliott Management, argued, "Breaking this cycle requires dollarization—otherwise injected dollars just get siphoned offshore by oligarchs."
Smaller Latin American economies like Ecuador and El Salvador already use the dollar. However, the IMF warns dollarization would force Argentina to adopt Federal Reserve policies, potentially stifling growth. Many Argentine dollar bondholders view formal dollarization as a distant prospect, requiring a massive replenishment of depleted reserves.
**Argentina's Policy Outlook Post-Market Stabilization**
Last month's crisis—triggered by Milei's party suffering a regional election defeat and subsequent peso run—threatened macroeconomic stability before rebounding after a decisive legislative election victory.
With markets stabilizing post-Milei's win, investors anticipate Argentina may transition from its official peso-dollar exchange rate "band" to greater flexibility with US and IMF support. Bondholders worry the current trading band keeps the peso artificially strong, curbing inflation but deterring dollar inflows needed to rebuild reserves.
Hanke estimates 76% of Argentina's accumulated debt since 1995 has vanished through capital flight due to chronic peso distrust. "All these bailouts were bad deals—if even a quarter of debt remained invested productively, it wouldn't generate enough free cash flow for repayment," he said. "The required returns would need to be absurdly high."
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