The Argentinean currency board ended up in a collapse in 2001 - A study

Résumé du document

Despite the fact that more than a century has passed after the adoption of the gold standard in the main developed powers and the implementation of a strict monetary regime in Argentina, those two systems seem to rely on the same process. It aims at pegging a national currency by making its supply dependent on the actual amount of a specific benchmark also called as reserve currency. In other words, both processes maintain absolute convertibility between a national currency and the one against which they are stabilized at a fixed exchange rate. In the case of gold standard, the reserve currency was obviously gold whereas Argentina chose to peg its pesos to dollar. Moreover, both the Argentinean currency board and the gold standard in the XIXe ended up in a major crisis. Should we conclude, as many people do, that the gold standard is only a specific case in the currency board mechanism? Is the Argentinean currency board only a resurgence of gold standard in the XXe century?

Extraits

[...] Luis Miotti, " Depuis 1991, le taux de chômage est très élevé, de l'ordre de 12-13% -je ne parle pas d'aujourd'hui où il est autour de 19-20%- et les salaires sont restés stables. La croissance argentine n'a pas entraîné de croissance réelle des salaires, ni de l'emploi parce qu'elle était stimulée par les crédits. " Many economists think that it is helpful to increase money supply during times of recession but countries cannot play with their amount of money supply under the gold standard system, except if they have enough gold stocks. Neither can they do that under currency boards. Maurice Obstfeld and Alan M. [...]

[...] Moreover, both the Argentinean currency board and the gold standard in the XIXe ended up in a major crisis. Should we conclude, as many people do, that the gold standard is only a specific case in the currency board mechanism? Is the Argentinean currency board only a resurgence of gold standard in the XXe century?[2] We will base our analysis on the following observation: the main obvious difference –among others- between the Argentinean currency boards and the gold standard system is the reserve currency. [...]

[...] Argentinean currency board had some disastrous consequences in terms of employment, social cohesion, wages etc. while gold standard creates a more sustainable system. Indeed, Argentinean currency board can be assimilated to a dollarization system. In other words, it triggers international investments and trade mainly because the international community had the opportunity to do it in dollars. These dollars were turned into pesos thanks to the currency board since the strict convertibility was therefore respected. It resulted in a huge increase of money supply. [...]

[...] While the gold standard could be considered as a rather spontaneous globalised process[9], the Argentinean currency board is the result of a voluntarist government policy which did not really take into account the specific economic situation and decision of its powerful neighbor especially Brazil, as the crisis in 1999 shows us. Maybe, developing countries should rely on a of currency boards that means a currency boards taking into account both dollar and euro for instance as anchors so they can create an hybrid monetary system whose characteristics and consequences will be closer to those of the gold standard. This will especially enables the country to avoid one of the most important flaws of currency boards, as we have seen throughout this paper, the complete dependence to one other currency. [...]

[...] Indeed, the competitiveness of Argentinean pesos depended on the strength and the competitiveness of the dollar. For instance, the euro largely reduced the dollar competitiveness at the time it came out in 2000. In a logical manner, when the dollar loses some weight, so did the pesos in Argentine. On the other side of our paper, there is almost no problem like this with the gold standard. Indeed, even if gold is suddenly worth nothing, all the currency will decrease in value. [...]