Currency board, dollarisation or flexible exchange rates for emerging economies? Reflections on Argentina

Abstract

Since the 1990s many emerging countries have adopted a fixed exchange-rate peg vis-à-vis a reserve currency in order to cope with economic imbalances such as buoyant inflation, high unemployment or staggering economic growth. However, after a period of economic stabilisation and prosperity, overheating effects showed up in several countries that were often coupled with difficulties in the banking and/or the real estate sector. Sticking with a fixed peg, the likelihood of a currency crisis increased. The case of Argentina shows that even with a currency board it is difficult to restore confidence if a crisis has already been developing for several years. This article presents an economic analysis of the Argentina crisis.