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Forbidden Dollars

Jan 10, 2012 • Demand, Supply, and Markets, Developing Economies, Economic History, Financial Markets, Households, Money and Monetary Policy, Regulation • 275 Views    No Comments

By Mira Korber, guest blogger, Kent Place School alumna, Yale student, and recent traveler to Buenos Aires, Argentina. 

In Argentina, a $100 USD bill is a hot item.

And though Argentines want US dollars — for traveling, saving, or otherwise — they cannot get them easily. Government imposed restrictions prohibit citizens from withdrawing any currency other than pesos from the bank. 

Despite this, Argentines are attempting to access their funds in dollars due to mistrust in the global economy. They fear losing their savings as they did in 2001, when the peso was devalued over 300% and unpegged from the US dollar. 

After Argentina defaulted on its loans from the IMF, it imposed the “corralito;” in other words, savers could only withdraw $250 USD each week from their bank accounts. Argentines began protesting by whacking pots and pans, a phenomenon known as the “cacerolazo” before disintegrating into fully-fledged protests against the economic mismanagement of their country. 

Read an explanation of how the 2001 crisis unfolded here.

The Economic Lesson

An economic definition of money states that it must be a unit of value, medium of exchange, and store of value. The Argentine peso should function in all three arenas, so why are citizens seeking US dollars in the first place? Globally, whenever a country experiences stormy economic conditions, citizens tend to seek refuge in a currency that they know is a legitimate store of value — in the long run. Now, 10 years after the riots of 2001, it appears that Argentines fear their pesos will devalue drastically again if economic disaster strikes for a second time. They turn to dollars as a symbol of security. 

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