Re: the 'patacon'

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 04:53 PM 09/06/2001 -0500, you wrote:

> is anyone following the 'patacon' phenomenon in Argentina?  In the face
> of budget balancing requirements, Buenos Aires has issued a different
> currency, the patacon (singular; plural is patacones) so that they can
> can pay workers wages and meet other commitments.  an important part of
> promoting acceptability has been to make them acceptable for paying
> taxes and cancelling tax debts.

It looks as if the usual is happening: a monetary "fix" (hooking the
Argentine peso to the dollar by law) encourages financial innovation and
the creating of a new kind of money (patacones and barter coupons), getting
around the fix (so far). It's similar to the way the Russians developed new
ways of trading & bartering to get around monetary restrictions.)

(Similarly, but much more moderately, the monetarist fix in the US during
the early 1980s led to innovation that means that the velocity of money is
unstable -- and monetarism is rejected. A couple of days ago, I received
the statistical monthly of the Federal Reserve of St. Louis, long a
stronghold of monetarism. The money supply isn't even reported. Of course,
the current orthodoxy -- so-called new Keynesianism --- is quite monetarist
in all other ways.)

The patacones ("wampum") are only replacing money as a means of payment.
It's not a store of wealth (though the NY TIMES, where I got all my info
from, reported that theives are willing to steal it). It's already being
heavily discounted (even though the patacones promise to pay interest). One
patacón is worth one peso officially, but a Big Mac combo costs one more
patacón than it does pesos. (McDonald's accepts patacones to prove its
patriotism.)

Following Gresham's Law, it's likely that patacones will drive pesos out of
circulation if they continue to be printed. But pesos and US$ are the main
store of wealth. I think we'll see patacón inflation soon (falling value of
the patacón).

Jim Devine jdevine@xxxxxxx & http://bellarmine.lmu.edu/~JDevine