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Monday, 24 December, 2001, 12:05 GMT
Third time lucky for Argentine money?
An Argentine foreign exchange bureau
As if money were not confusing enough already
By BBC News Online's James Arnold

Keeping up with Latin American currencies is never easy - no other region, it seems, tinkers with its money so persistently.

Tough as it is to tell one's Peruvian nuevo sol from one's Paraguayan guarani, yet another new currency is now promised - the argentino.

Argentina's interim government hopes the argentino - which is intended to circulate alongside the existing peso and US dollar - will be the cure for its ills.

Introducing a new currency, the authorities hope, will help stimulate spending, while avoiding a humiliating climb-down over the peso, currently pegged against the dollar and an unshakeable element of economic policy since 1991.

But a brief glance at the precedents does not bode well for the argentino - trying to make a go of several currencies at once is rarely a success.

Secretive Saa

Details of the argentino are still maddeningly vague.

Indeed, it may well not happen at all.

All that has been said so far came in an interview given by interim President Adolfo Rodriguez Saa to Argentine daily Pagina/12 last week.

President Adolfo Rodriguez Saa
Mr Rodriguez Saa is keeping quiet about the argentino

The argentino, Mr Rodriguez Saa said, would be a third currency, circulating as legal tender at the same time as the peso and dollar.

Some $10bn-worth of argentinos will be printed initially, Mr Rodriguez Saa said, and they will replace the cluster of local bonds which have been used as currency in some provinces since this crisis hit in August.

A mass of questions remain unanswered - most crucially, whether more argentinos will be printed, and what exchange rate they will have to the peso.

Multiple money...

Having more than one currency running at once is nothing out of the ordinary.

The US dollar is a second currency - in some cases, as fully legal tender - throughout much of Latin America.

In much of Europe, the patchwork of states means that many shops accept whatever currency people throw at them.

And the whole notion of "one country - one currency" is in any case new.

Until World War I - and beyond in some countries - currencies were commonly issued on a municipal or regional basis throughout Europe.

... can't buy happiness

But these are the exceptions.

In practice, multiple currency regimes almost never work as they are intended.

For a start, the sheer mental effort involved in daily earning and shopping takes its toll on morale.

And invariably, consumers take a position on the particular currency they trust, and then do everything they can to shun the ones they don't.

Possibly the closest comparison, albeit one within a very different economic framework, is with Cuba, where the US dollar and two sorts of peso are in circulation.

Lacking faith in their government, most Cubans avoid the pesos like the plague, and devote themselves to earning dollars - a demand imbalance that skews the official relationship between the three currencies.

The pariah peso

It's hard to imagine Argentina avoiding a similar situation.

Argentines have already lost their faith in the peso, despite its exchange-rate peg, and the fact that every peso in circulation is backed by one dollar in central-bank reserves.

It is hard, then, to imagine them being won over by a new currency which is backed by nothing more than the promises of an interim government.

Mr Rodriguez Saa has not yet said what the argentino will be backed with, but it is safe to assume that it will be little - after all, if the government had hard currency reserves, it would be simpler to issue more peso.

Confidence counts...

Any collapse in confidence in the argentino could cause severe problems, even if there is no official way to trade the various currencies against each other.

A Buenos Aires Santa Claus
Will Santa deliver for Argentina?

The patacon - a local currency backed by the Buenos Aires provincial administration - lost 15% of its value against the peso on the black market within one week of its launch in August.

When that sort of thing happens, shopkeepers start refusing the money, and then workers start refusing to work for it.

Within the confines of a centrally planned economic system, such as Cuba's, an effectively worthless currency can - just about - continue to function.

But Argentina is supposed to be an open capitalist economy, and therefore has to abide by the merciless dictates of the free market.

... and so does consumerism

Of course, the Argentine government must realise this.

Indeed, its intention may not be to create a rock-solid third currency for Argentina, but simply to stimulate the economy.

Effectively, Argentina will be printing money, which will swell the money supply.

This, in turn, will spark inflation, as Argentines rush to spend the extra notes they find in their wallets before they dwindle in value.

And that may not sound too appealing a prospect, but for recession-mired Argentina, currently locked in the stagnation of deflation, a little surge in prices and spending would be most welcome.

A happy Christmas?

If it came off, it would be an artificial sort of boom, but even artificial booms have their place.

At Christmas, for example, the rush to exchange gifts ought in theory to result in a zero net gain for the overall economy in the long run.

But, in fact, the sudden flurry of seasonal economic activity helps create jobs and earn money that might not otherwise materialise.

Mr Rodriguez Saa must be hoping that the argentino - if it is ever launched - delivers his country a belated Christmas present.

See also:

24 Dec 01 | Americas
Argentine leader upbeat on debt plan
23 Dec 01 | Business
Argentina default impact limited
21 Dec 01 | Business
Argentines wait for new policy
21 Dec 01 | Business
Bush backs IMF austerity measures
22 Dec 01 | Americas
Viewpoint: There is no future here
13 Dec 01 | Americas
Argentina delays pension payments
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