Argentina has welcomed a mad president who, just days into his term, decided to devalue the legal currency, the peso, from 366 pesos per US dollar to 800 pesos per US dollar in an instant.

Before being elected president, the whole world considered Milai to be a "madman." His campaign promises could be described as shocking to the point of death, such as Milai's claim to abolish the Central Bank of Argentina and to "fully dollarize."

It was originally thought that Milai was just making outrageous statements to attract supporters in order to be elected president, but it turned out he was not joking. After becoming the president of Argentina, he began to fulfill his previous words, with the first step being to have the Minister of Economy announce a proactive devaluation of the fiat currency, a devaluation of 54%.

In fact, the devaluation of the peso against the US dollar is not something new; it would be surprising if it did not depreciate. In 2015, less than 10 pesos could be exchanged for 1 US dollar, which was still valuable; by 2017, it had depreciated by a factor of two, exceeding 17; afterwards, it became even more exaggerated, surpassing 50 in 2019, 100 in 2021, over 200 in March of this year, and the current exchange rate against the US dollar is already 366.

This devaluation is different from the past; it is not a slow process like a dull knife cutting meat, but a one-step到位, devaluing from 366 to 800 in one day, with a devaluation rate of 54%. Imagine, if you go to sleep and wake up the next morning to find that the money in your bank is only half the value of the previous day, wouldn't that feel like the sky is falling?

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What's even more astonishing is that Milai said the 54% overnight devaluation was to curb rampant inflation in Argentina. What kind of logic is that? Inflation doesn't mean that money is worthless? Milai's method of curbing inflation is to let the peso exchange rate fall by more than 50% in one day, isn't that fueling inflation?

Although Milai is crazy, being able to sit on the presidential throne proves that he is not a fool. He has basic financial and economic knowledge. Why would he actively devalue so much? We first need to understand a concept, that is, currency exchange rate devaluation does not mean a decrease in purchasing power.

Since 2023, there has been continuous debate around whether there is deflation in the country. In November, the CPI fell by 0.5% year-on-year and month-on-month, making such discussions a focus again.

Regardless of whether there is deflation or not, it cannot be denied that a decrease in CPI means a drop in prices. The same 100 yuan can now buy more goods and services, making money more valuable. On the other hand, although the exchange rate of the renminbi against the US dollar has rebounded, it is still at a low level. The offshore renminbi was 6.7 in January this year and is now 7.2, a depreciation of 6.94%.

The decline in CPI indicates that the renminbi is valuable and has appreciated, while the exchange rate decline means that the renminbi is not valuable and has depreciated. Isn't that contradictory?It's not understood that way; in fact, there's no contradiction at all.

The decline in CPI is a comparison between the renminbi and the prices of goods. When the prices of goods fall, the value of the renminbi, or its purchasing power, increases. The exchange rate is a comparison between the renminbi and the US dollar. When the price of the US dollar rises and the price of the renminbi falls, we can consider the US dollar as a commodity. A devaluation of the exchange rate means that more renminbi is needed to "purchase" the same amount of US dollars.

In essence, it's just a matter of different comparisons. Compared to domestic goods, the renminbi is more valuable, but compared to the US dollar, it's less valuable.

The Argentine peso follows a similar logic. A 54% devaluation against the US dollar does not mean that its purchasing power has decreased by 54%. As long as the country does not continue to "print money" recklessly, the purchasing power of the currency can remain unchanged or even increase.

At the same time, Milai has also adopted other measures from the "shock therapy," such as preparing to cut the number of government departments in half, reducing 18 departments to 9 at once, cutting government spending by 20 billion yuan, reducing subsidies for energy, and decreasing government investment. In summary, the government spends less to alleviate debt pressure.

This approach is a last resort. The Argentine government is most lacking in money and often declares bankruptcy. According to statistics, Argentina still owes the $40 billion emergency loan it borrowed from the IMF in 2018, and Argentina's net foreign exchange reserves are negative $7 billion. This means that even if Argentina no longer imports any goods with US dollars and uses all its US dollar assets to repay debts, it still cannot clear the debt, not to mention that stopping imports is an impossibility.

Milai's proactive devaluation of the exchange rate seems to have some effect on alleviating Argentina's debt crisis for two reasons.

First, devaluation makes domestic debt "worth less."

To illustrate with a simple example, assume the Argentine government owes 80 billion pesos in domestic debt. At an exchange rate of 1:366, it would need to "buy" 80 billion pesos with $2.18 billion on the foreign exchange market to repay the debt. When the exchange rate depreciates to 1:800, only $1 billion is needed to purchase 80 billion pesos.

Argentina already lacks foreign exchange, so the less it uses, the better. Devaluation of the exchange rate causes domestic debt to shrink, making it "worth less" than before.Secondly, stimulate exports while suppressing imports.

Exporting involves selling goods and services to foreigners to earn foreign exchange, while importing involves spending money to purchase goods and services from foreigners. Argentina's situation is characterized by high debt and limited funds. Increasing exports and earnings, while reducing imports and expenditures, can alleviate debt pressure, necessitating the implementation of corresponding monetary policies.

It is well known that devaluation of the domestic currency is beneficial for exports but detrimental to imports. If Miley could instantly devalue the peso, it might stimulate Argentine export companies to earn more foreign exchange, while reducing spending on foreign exchange by increasing costs.

Furthermore, forcing the government to spend less would undoubtedly have an even better effect.

Argentina already has little money, and the government can only "print money" or borrow when it needs to spend. The former is one of the main culprits of hyperinflation, while the latter exacerbates the debt burden. Reducing government spending not only eliminates the rationale for "printing money" but also curbs the impulse to borrow, achieving a dual benefit.

Therefore, although Miley's actions are quite radical, there are no significant issues with his actions and logic.

However, many things often differ from expectations. Take the reduction of government departments as an example; this matter still needs to be voted on by the parliament. Miley's party does not have a high proportion of seats in the parliament, and other party members may not have the awareness to revolutionize themselves.

Does Argentina have a future, and can the "madman" Miley create a miracle? Time will provide the answer.