Financial Dollarization in Argentina: A Historical Analysis of a Current Restriction

Abstract

For more than half a century, the evolution of saving patterns in Argentina has been characterized by the dollarization of households and firms’ stores of value. We will explore the main elements that conditioned the saving decisions of households and firms throughout the Argentine monetary history. To this end, we will begin by analyzing the evolution of the real returns of the main private sector’s stores of value over almost eighty years. Understanding the effects of changing monetary and exchange rate environments on real returns, constitutes a central element of the analysis. It allows us to shed light on asset substitution between stores of value denominated in local currency and those denominated in dollars. From a methodological perspective, in order to rationalize the households and firms’ stores of value demands, we will use optimal portfolio selection approaches under alternative preferences schemes. The main contribution of this article is to use portfolio theory to show that the dollarization of private sector stores of value observed in Argentina for more than fifty years constitutes an adaptive response by households and firms exposed to uncertain economic environments, characterized by disruptive exchange rate shocks and persistent inflationary processes.

JEL classification: E41 ; E44 ; G11