The country instituted a currency board in 1991 in response to hyperinflation and a lack of policy credibility. Despite its fixed exchange rate and constitutionally self-imposed restrictions on issuing currency, Argentina still finds itself buffeted by international shocks. Because the Argentine peso circulates along with the dollar, the chance of devaluation remains a possibility in spite of Argentine policymakers' hard work to assure investors and peso holders that such a currency realignment would never happen. Argentina's economy is not small, nor does it have extensive ties with the United States. The fact that it has successfully operated a currency board arrangement for much of the last decade, however, goes a long way toward enhancing Argentina's drive toward full dollarization.
Monetary policy is automatic.
If investors switch out of domestic currency into dollars, the supply of domestic currency will automatically shrink. This decline will cause interest rates to rise until it becomes attractive for investors to hold local currency again. The process involves adopting the U.S. dollar as the official currency. The national currency unit ceases to exist. Monetary policy is made by the Federal Reserve in the United States with no formal input from officials in the dollarized economy.