If Argentina ultimately dollarizes, it may have more luck than it did the last time it tried to solve its inflation problem by tying its currency to the dollar. As Scott Sumner points out, that last attempt was made at a time of relative dollar weakness while this one would happen at a time of relative dollar strength. This, he explains,
makes it more likely that Argentina’s inflation rate over the next few decades will slightly exceed the US level. If the dollar were currently weak, then Argentina might be expected to experience slightly lower inflation than the US (as the dollar strengthened.) In fact, Argentina has far more to fear from a few years of negative 1% inflation than from a few years of 5% inflation. Indeed, given their current triple-digit inflation rate, even a 5% inflation rate would seem like price stability to the Argentine public.
That compared-to-what point is lost surprisingly often. Thus some commentators have asked why Americans are unhappy about a 3.2 percent inflation rate when they were delighted with the economy of the mid to late 1980s, when rates were almost always higher than that. The answer, I think, is context: The inflation rates of the 1980s were lower than Americans had gotten used to, whereas today’s rates are higher than we had gotten used to.