Argentina’s latest experiment in monetary shock therapy is not the clean rupture its slogans promised. Javier Milei reached office waving a chainsaw and vowing to dollarise, close the central bank and end inflation by force. Instead, the country has slid into a hybrid regime that lives in dollars psychologically and financially, but clings to the peso institutionally. Prices and contracts lean ever more heavily on the US currency; the central bank still exists; foreign reserves remain fragile; austerity bites. The result is what might be called “dollarisation lite”: a hard squeeze on domestic money, fewer pesos in circulation, a heavily managed exchange rate and a state that bets everything on credibility through pain.

From Peso Fatigue to Dollar Dreams

Argentina did not arrive at Milei’s programme from a position of normalcy. It arrived after repeated currency crises, decades of inflationary finance and a long erosion of trust in the state’s ability to preserve the value of its own money. The peso had already become a reluctant instrument before Milei. Argentines saved in dollars, priced apartments in dollars, thought of “real” value in dollars. Politicians continued to print pesos to cover deficits; citizens responded by fleeing them at the first sign of trouble.

Against that backdrop, full dollarisation sounded less like an exotic idea and more like an extreme extension of everyday behaviour. The promise was brutal simplicity: scrap the peso, import credibility, and outsource monetary policy to the Federal Reserve. Economists pointed out the costs: loss of lender-of-last-resort capacity, no independent response to shocks, a permanent need to earn every dollar in circulation through exports, remittances or debt. But for a public exhausted by serial crises, the appeal of “never again” inflation was strong.

What “Dollarisation Lite” Actually Looks Like

The reality of Milei’s programme diverges from the campaign posters. The peso remains legal tender; the central bank continues to operate; the exchange rate is managed rather than abandoned. But the architecture of day-to-day policy is unmistakably hard-line. Monetary aggregates have been tightened sharply; interest rates have been pushed high in real terms; deficits have been slashed through a mix of subsidy cuts, public wage restraint and delayed payments. Capital controls, inherited from previous administrations, have not vanished — they have been repurposed.

Unofficially, the system encourages dollar use while trying to stabilise the official exchange rate long enough to rebuild reserves and tame inflation. Exporters are nudged to liquidate; importers are queued and filtered; multiple exchange rates survive under new names. Domestic banks and firms operate in an environment where the peso is a transactional token more than a store of value. The state is asking Argentines to behave as if they trusted its new discipline, while leaving in place many of the instruments that reflect their previous distrust.

A Simple Table of an Untidy Choice

The choice facing Argentina can be simplified into three options. None is painless; each has different political and social costs.

By choosing the middle column, Milei has accepted the pain of adjustment without the legal irrevocability of a currency change. His bet is that markets and citizens will treat the current regime as if it were a one-way street — even though, on paper, it is not.

Inflation, Recession and the Politics of Time

Early in the programme, inflation remains high, driven by tariff adjustments, subsidy withdrawals and relative price realignments. At the same time, demand contracts under the weight of austerity. This combination — administratively induced price jumps alongside a weakening economy — is the familiar shock-therapy pattern. It can work if the pain is temporary and the trend clearly points to lower inflation later. It becomes politically toxic if hardship lingers without a visible turning point.

In Argentina, that turning point is not just an economic metric. It is a narrative threshold. Citizens who have lived through multiple “stabilisation” plans measure success not in presentations to investors but in whether salaries stop evaporating between paydays, whether supermarket prices stabilise, and whether they can plan more than a few months ahead. A programme that delivers spreadsheets full of primary surpluses but not everyday stability risks losing legitimacy long before technical targets are met.

Reserves, the IMF and the Ghost of Past Programmes

Any version of dollarisation, strict or soft, runs through the balance sheet of the central bank. Argentina needs dollars — to pay creditors, to stabilise the exchange rate and, in the more radical scenario, to swap pesos in circulation. Milei’s government leans heavily on external anchors: the International Monetary Fund, bilateral lenders, potential market reopenings. In return, those actors demand familiar things: fiscal consolidation, more predictable rules, progress on reducing monetary financing of the state.

The difficulty is one of memory. Investors and multilateral officials have seen this movie before. Past governments pledged discipline, received support, then backtracked under social and political pressure. The current programme must therefore overcome not just macroeconomic imbalances but also a credibility discount accumulated over years. “Dollarisation lite” tries to solve this by signalling a tougher, more ideologically committed stance. Whether that commitment can survive protests, recession and declining approval ratings is the real test.

The Social Geography of Adjustment

Economic regimes are lived unevenly. Exporters with access to dollars can benefit from a clearer, more predictable FX regime if it emerges. Upper-middle-class households, already used to saving in foreign currency, find ways to shield themselves through financial instruments, real estate or overseas accounts. Informal workers, pensioners and public employees have no such insulation. For them, the shock takes the form of higher transport fares, utility bills that climb as subsidies are cut and local prices that adjust far faster than their incomes.

This social stratification matters because it determines the durability of the programme. A stabilisation strategy that is perceived to protect the dollarised and punish the peso-bound will struggle for long-term consent. Argentina’s political history is full of regimes that lost the streets even as they impressed technocrats.

Credibility: Imported, Enforced or Built?

The intellectual debate around Milei’s programme often circles back to a single word: credibility. Can it be imported from abroad via dollarisation? Can it be enforced by legal constraints and constitutional reforms on spending and money creation? Or must it be built slowly through repeated, boring demonstrations that the state will not relapse into old habits?

Dollarisation lite sits awkwardly between these options. It uses the language of imported credibility — “we will behave as if bound by an external standard” — without fully giving up domestic discretion. It gestures toward enforcement by promising institutional reforms, but these are filtered through a volatile coalition and a fragmented Congress. It has little time for the slow work of building trust through incremental, predictable policy, because its narrative is one of shock and rupture, not gradualism.

What Success Would Actually Look Like

If the current path works, the signs will not appear first in elite commentary but in mundane data. Monthly inflation would drift steadily downward into single digits and then low single digits. Parallel exchange-rate spreads would narrow as confidence in the official market grows. Real wages, after an initial slump, would begin to recover. Banks would expand peso intermediation without needing constant regulatory compulsion. The debate over full dollarisation would fade because the peso would no longer feel like a burning asset that must be ditched at every shock.

Success, in other words, would make the “lite” character of the regime less relevant. Argentina would remain financially dollarised to some degree — habits die slowly — but the domestic currency would regain enough stability to be used without fear. At that point, the question of whether to cross the final threshold into formal dollarisation might matter less than it does in today’s polarised debates.

The More Likely Outcome: A Managed, Mutating Crisis

The darker, and perhaps more probable, scenario is neither hyperinflation nor triumphant stabilisation, but a managed, mutating crisis. Inflation could fall from catastrophic levels to merely high ones, leaving the country in a grey zone where prices still erode savings and planning, but not fast enough to trigger a cathartic reset. The exchange rate might avoid dramatic collapse yet continue to trade with persistent distrust premiums. Social discontent could simmer rather than explode, forcing the government into incremental concessions that weaken the purity of its fiscal and monetary targets.

In that world, dollarisation lite becomes not a bridge to a more stable order but another layer in Argentina’s long palimpsest of incomplete reforms. The chainsaw rhetoric would give way to the familiar hacksaw work of patching, adjusting and renegotiating — precisely what the programme promised to transcend.