IDEAS home Printed from https://ideas.repec.org/p/hwe/hwecwp/2003-e01.html
   My bibliography  Save this paper

Why did Argentina's Currency Board Collapse

Author

Listed:
  • Francois Gurtner

Abstract

This paper sheds light on the risks associated Currency Board Arrangements, referring to the liquidity crisis that emerged in Argentina in November 2000. The inability of the Argentinean economy to grow because of an overvalued peso increased the country’s reliance on external borrowings, which seriously undermined the credibility of its fixed exchange rate regime. This paper shows that with rigid labour markets, a lack of fiscal discipline and the absence of a natural anchor currency, Argentina was never a strong candidate for a hard peg. When the years of euphoric growth ended, the currency board arrangement became a trap that could not be removed smoothly given Argentina’s highly dollarised financial system. A series of measures aimed at reviving growth were implemented in order to prevent the country from defaulting on its foreign debt. But with no signs of upturn in demand, increasingly distrustful international investors and growing social unrest, the country was forced into default in December 2001, one year after the initial eruption of the liquidity crisis, putting an abrupt end to Argentina’s decade long experiment with hard money

Suggested Citation

  • Francois Gurtner, 2003. "Why did Argentina's Currency Board Collapse," Working Papers E01, Department of Economics, School of Management and Languages, Heriot Watt University.
  • Handle: RePEc:hwe:hwecwp:2003-e01
    as

    Download full text from publisher

    File URL: http://www2.hw.ac.uk/sml/downloads/economics/DP2003-E01.pdf
    Download Restriction: no

    More about this item

    Keywords

    Argentina; currency-board arrangement; debt-crisis; exchange-rate policy;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hwe:hwecwp:2003-e01. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Colin Miller). General contact details of provider: http://edirc.repec.org/data/dehwuuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.