Dr. Brenda Harper
International Business – MGMT 338
February 6, 2012
Countries outside of the U.S., like Argentina, rely on the value of the American dollar. They do this because they want to keep their currency “pegged” to the American dollar. According to Businessdictionary.com the definition of a pegged exchange rate is, “System in which the value of a country's currency, in relation to the value of other currencies, is maintained at a fixed conversion rate through government intervention.” While this does work most of the time a pegged exchange rate it does not always work. Argentina had this exact problem in the case “Argentina Monetary Crisis”. Having this kind of exchange rate is often referred to as a dirty float:
A system under which a country’s currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value. (Hill, 2011, pg. 342). Like most things there are pros and cons to just about anything, including the international monetary system. Argentina tried using this method but in the end it did not work and they gave in and went in another direction.
Argentina Monetary Crisis
In this case Argentina struggles with keeping the peso at the value to equal the American dollar (1 peso = $1). The problem with keeping the peso equal to the dollar was that their trading partners, like Brazil, were facing their own financial issues. With other countries facing difficult economic times the goods being exported from Argentina were either taken out of the market all together or were now too expensive to other markets.
Once people were “pulling money out of pesos, placing their funds in dollar accounts,” (Hill, 2011, Pg. 399), this caused Argentina to buy them back with government money to keep them equal to the dollar in the U.S., according to...