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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 ()

No 2980, Policy Research Working Paper Series from The World Bank

Abstract: The rise and fall of Argentina's currency board shows 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 monetary or fiscal 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: Economic Theory&Research; Banks&Banking Reform; Fiscal&Monetary Policy; Payment Systems&Infrastructure; Financial Intermediation; Banks&Banking Reform; Fiscal&Monetary Policy; Financial Intermediation; Financial Economics; Economic Theory&Research (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2003-03-31
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Journal Article: Living and Dying with Hard Pegs: The Rise and Fall of Argentina’s Currency Board (2003) Downloads
Working Paper: Living and Dying with Hard Pegs: The Rise and Fall of Argentina´s Currency Board (2003) Downloads
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