Putting the Banks in Charge
To save Argentina's decimated banking system, economist Steve Hanke proposes repealing the Central Bank's ability to issue pesos and giving solvent banks the ability to issue dollar-denominated notes.
Many eminent economists - Olivier Blanchard, Michael Bordo,
Sebastian Edwards, Martin Feldstein, Ricardo Hausmann, Paul
Krugman, Allan Meltzer, Michael Mussa, Joseph Stiglitz, Thomas
Willett and John Williamson -- told us that dumping
convertibility would work wonders in Argentina. Indeed, they
trotted out every half-truth or non-truth under the sun to
bolster their claims that the source of Argentina's problems
was convertibility and that a floating peso, and pesofication
of contracts and financial liabilities and assets were just
what the doctor ordered. Under the Convertibility Law, the peso
and US dollar legally circulated at a one-to-one exchange rate.
The owner of a peso had a property right to a dollar and could
freely exercise that right by converting pesos into dollars.
That redemption pledge was credible because the central bank
was required by law to hold foreign reserves to cover fully its
peso liabilities. It doesn't take a rocket scientist to...
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