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Date: | Fri Mar 31 17:18:27 2006 |
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----------------- HES POSTING -----------------
[log in to unmask] wrote: "There has been no mention in the press about how
the Argentinoes will get into circulation. It seems the government prefers
it to be a mystery."
The Financial Times has been reporting over the last week on a number of
ways that the new currency will get into circulation. Presuming the plan
is still on the table (given resignation of Saa), allow me to summarize:
1. Some argentino issue will be used to soak up the various quasi-monies
issued by provinces to meet the cash shortage, also the low denomination
federal debt issued for same purpose. I have seen no report on the price at
which this swap will take place, but presume that it will be at or near
par, meaning one argentino for one peso (face value).
2. Some argentino issue will be used to pay out bank deposits in cash. The
FT reports that peso deposits will be paid out in argentinos at a rate that
will protect their real value. Hence likely more than one argentino for one
peso.
3. Wages and salaries will also be paid in argentinos. Early reports
suggested an exchange rate of one argentino for one peso, so a decrease in
real wages given likely devaluation. I take it this is a critical political
stumbling block, given protection of real value of savings.
4. Argentinos will be the liability of the central bank. Presumably the
currency board pesos are backed one for one by dollars, hence the available
foreign reserves for making the argentino convertible in international
markets.
All this makes me conclude that devaluation is inevitable. Presuming that
the currency board protects the real value of cash pesos, the question
remains what happens to the value of promises to pay cash pesos, promises
issued by banks, provinces, and other bodies. Who gets protected, and who
does not, is the political question that stands in the way. In a way, it is
the same political question that got us to this point (as Larry Moss
reminded us in his earlier post).
Perry Mehrling
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