Gaucho banking redux

Gerardo della Paolera () and Alan Taylor

No 03-04, Pacific Basin Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Argentina's economic crisis has strong similarities with previous crises stretching back to the nineteenth century. A common thread runs through all these crises: the interaction of a weak, undisciplined, or corruptible banking sector, and some other group of conspirators from the public or private sector that hasten its collapse. This pampean propensity for crony finance was dubbed "gaucho banking" more than one hundred years ago. What happens when such a rotten structure interacts with a convertibility plan? We compare the 1929 and 2001 crises-the two instances where rigid convertibility plans failed-and reach two main conclusions. First, a seemingly robust currency-board can be devastated by an ill-conceived approach to the problems of internal and external convertibility (or, to rephrase Gresham, "bad inside money drives out good outside money"). Second, when modern economic orthodoxy collides with caudillo-style institutional backwardness, a desperate regime with its hands tied in both monetary and fiscal domains will be sorely tempted by a "capital levy" on the financial sector (for, as Willie Sutton said when asked why he robbed banks, "because that's where the money is").

Keywords: Argentina (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-his, nep-ifn and nep-mfd
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Citations: View citations in EconPapers (11)

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Journal Article: Gaucho Banking Redux (2003)
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