Could a New Currency Be the Solution to Argentina’s Never-Ending Inflation Problem?

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Espa√Īol¬†The Central Bank of Argentina has reaped nothing but failures throughout its history.

Since its founding in 1935, inflation has averaged 55 percent per year. Since its issuance by the BCRA, 13 zeros have been added to national currency. The Argentine state monopoly on money was devised by the conservatives, and, interestingly, those who opposed it were the socialists of the time, denouncing the Argentine state for converting the Central Bank into a source of financing and harming workers.

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The last period of hyperinflation, which ended with President¬†Raul Alfonsin,¬†led to the¬†premature assumption by¬†President Carlos Menem that he could iron out the “convertibility law.” At that time ‚ÄĒ around 1991 ‚ÄĒ the Austral was¬†replaced¬†with the Peso at a rate of¬†ten thousand to one. The new currency was¬†exchangeable¬†one to one with the¬†US dollar. The impossibility of minting new currency ended with inflation, but as usual the underlying problem of the fiscal deficit¬†had not been solved. The 2001 crisis ended¬†with the 2002 devaluation. In 2003, President N√©stor Kirchner took over. Today, the¬†exchange rate¬†is at 19 to one and the fiscal deficit remains the country’s underlying problem.

While the government is looking for alternatives to reduce public spending (many times without success, other times with¬†small victories) economists Nicol√°s Cachanosky and Agust√≠n Etchebarne have made a monetary proposal that again seeks to end the problem of inflation and the Central Bank’s access to the Argentine dollar.

They agreed that the country needs to create an exchange currency connected to the currency of Canada and Australia. The value of this new currency could be produced with an average obtained from half of the value of 1.5 currency. The proposal comes at an opportune time as it has been two years since President Mauricio Macri has struggled with the inflation problem.

Recently, federal officials acknowledged that they could not meet the inflation targets that had been set at the beginning of the year.

Agust√≠n Etchebarne¬†told the¬†PanAm Post¬†that a conversion was planned with these currencies given the similarities between their economies and¬†Argentina’s.

“When there is a fall in the commodities of Canada and Australia, we see how devaluations occur that do not generate inflation,” the economist said.

According to Etchebarne, both Canada and Australia have a Common Wealth tradition from which “Argentina should never have departed”.

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