(SOLVED) 1 What was the impetus for Argentina s currency

board system

1. What was the impetus for Argentina's currency board system?

2. How successful was Argentina's currency board?
3. What led to the downfall of Argentina's curren
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s-currency-board-system

1. What was the impetus for Argentina's currency board system?

2. How successful was Argentina's currency board?
3. What led to the downfall of Argentina's currency board?
4. What lessons can we learn from the experience of Argentina's currency board?

Argentina, once the world's seventh-largest economy, has long been considered one of Latin
America's worst basket cases. Starting with Juan Peron, who was first elected president in
1946, and for decades after, profligate government spending financed by a compliant central
bank that printed money to cover the chronic budget deficits had triggered a vicious cycle of
inflation and devaluation. High taxes and excessive controls compounded Argentina's woes and
led to an overregulated, arthritic economy. However, in 1991 after the country had suffered
nearly 50 years of economic mismanagement, President Carlos Menem and his fourth Minister
of Economy, Domingo Cavallo, launched the Convertibility Act. (The first Minister of Economy,
Miguel Roig, took one look at the economy and died of a heart attack six days into the job.) This
act made the austral (the Argentine currency) fully convertible at a fixed rate of 10,000 australs
to the dollar, and by law the monetary supply had to be 100% backed by gold and foreign
currency reserves, mostly dollars. This link to gold and the dollar imposed a straitjacket on
monetary policy. If, for example, the central bank had to sell dollars to support the currency, the
money supply automatically shrank. Better still, the government could no longer print money to
finance a budget deficit. In January 1992, the government knocked four zeros off the austral
and renamed it the peso, worth exactly $1.

1 What was the impetus for Argentina s currency board system

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