Inflation is a monetary phenomenon that arises from an excess supply of money, which reduces the purchasing power of the currency and causes prices to rise. If the Central Bank has positive net assets, it can redeem its monetary liabilities without causing price shocks. Conversely, if the net worth is negative, a rise in prices is required to balance assets and liabilities.
In the last 25 years, monetary policy in Argentina has led to a destruction of the Central Bank's assets of around US$110 billion, contributing to the inflationary disaster. The asymmetric dollarization in 2001 stands out, which involved a theft of US$14 billion, adjusted today to US$30 billion. It is essential to restore the Central Bank's stock balance to combat inflation, as imbalances in the Central Bank's assets and liabilities generate present and future inflation.
The issuance of money against public securities without a market, known as spurious issuance, and the accruing of interest on swaps deteriorate the Central Bank's net worth, contributing to inflation. Price controls and quantitative restrictions have created excess money that increases inflation in the short term. The dynamics of prices (dollarc, tradables, wages) depend on the origin of the imbalance, and the fixed amount of money implies relative price changes.
To end inflation, work has been done on two fronts. Money issuance has been halted by eliminating deficits and regularizing stocks, recognizing losses in public securities and transferring Central Bank debt to the Treasury. Restoring the BCRA's net worth remains a crucial objective to combat inflation and foster economic growth. Despite challenges, progress is being made on the path to strengthening the economy and overcoming inflation.
