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Living and Dying with Hard Pegs: The Rise and Fall of Argentina’s Currency Board

Augusto de la Torre (), Eduardo Levy Yeyati () and Sergio Schmukler ()

Economía Journal, 2003, vol. Volume 3 Number 2, issue Spring 2003, 43-108

Abstract: The rise and fall of Argentina´s currency board illustrates the extent to which the advantages of hard pegs have been overstated. The currency board did provide nominal stability and boosted financial intermediation, at the cost of endogenous financial dollarization, but did not foster fiscal or monetary discipline. The failure to adequately address the currency-growth-debt trap, into which Argentina fell at the end of the 1990s, precipitated a run on the currency and the banks, followed by the abandonment of the currency board and a sovereign debt default. The crisis can be best interpreted as a bad outcome of a high-stakes strategy to overcome a weak currency problem. To increase the credibility of the hard peg, the government raised its exit costs, which deepened the crisis once exit could no longer be avoided. But some alternative exit strategies would have been less destructive than the one adopted.

Keywords: Exchange rate regime; currency board; dollarization; floating; currency crisis; banking crisis; convertibility (search for similar items in EconPapers)
JEL-codes: E44 F30 F33 F36 F41 G21 G28 (search for similar items in EconPapers)
Date: 2003
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