Can the Argentine Peso Resist Competition from the Dollar?
Argentina has entered a severe crisis since the end of 2001: bank deposits have been blocked, controls have been imposed on capital outflows and the currency board, which had tied the peso to the dollar since 1991, has been abandoned. Rather than this just being another, classical case of currency crisis linked to a banking crisis, the central issue at stake is monetary. This explains why the crisis is so violent and why it carries such economic and social risks. Indeed, the floating exchange rate puts the two currencies, which had been perfect substitutes for ten years, into direct competition. There is thus a danger that the weaker one will finish by being destroyed. This explains why the government has adopted a series of radical measures to "pesoise" the economy and the banking system. The key question now is whether the population will validate this attempt or whether it will impose a spontaneous "re-dollarisation", once access to deposits and forex markets has been reopened.
foreign exchange markets; international integration; monetary system; exchange rate; dollar; key currencies; crisis; system of payments; banking system
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