Argentina: National Bank Holidays, 2001

Starting in 1991, Argentina operated a currency board regime under which the central bank guaranteed a one-to-one peg of the Argentine peso to the US dollar. But in 2001, markets became increasingly concerned that the central bank would be unable to maintain the peg and would allow the peso to devalue against the dollar. At that time, more than two-thirds of Argentine bank deposits were denominated in dollars. Throughout 2001, depositors withdrew funds from banks; by November, peso deposits had declined by more than one-third and dollar deposits had fallen by one-tenth. On November 28, 2001, the systemwide banking run accelerated. On December 1, 2001, the authorities restricted withdrawals from demand deposit accounts to 250 Argentine pesos (ARS) or 250 US dollars per week per account holder across financial institutions, later altering and extending the restrictions in various forms. Within weeks the Argentine president resigned amidst widespread riots, and on December 21, the new president declared a bank holiday. During this holiday, the government announced that it would default on USD 141 billion in outstanding foreign debt, one of the largest sovereign defaults in history. On January 6, 2002, Congress ended Argentina's convertibility regime, replacing it with a dual exchange rate and later a floating exchange rate. That same week, the authorities raised the withdrawal limit to ARS 1,500 per month for pensioners and ARS 300 per week for all other account holders, while rescheduling the maturities for term deposits. Despite the government's ordering the conversion of dollar-denominated deposits to pesos at 1.4 ARS per US dollar, Argentina's courts ordered that banks pay out dollar-denominated deposits at the prevailing market exchange rate, with an even stronger dollar. During the following two years, the courts, through injunctions, also ordered the restoration of many depositors' access to their entire accounts. The restrictions on demand deposits were lifted in late 2002; however, term deposits remained restricted until mid-2003. By September 2003, banking system liquidity had improved, the Argentine peso had appreciated against the US dollar, and interest rates had stabilized.