Re: Incomes and Exchange rates; part 2

[Leigh Harkness <leigh@xxxxxxxxxxx>]

Laura

Is it true that the Argentine Peso is tied to and at par with the US dollar
and has been for a number of years?

Has inflation been less than 2% for 3 years?

And is the projected real rate of economic growth for 1997 greater than 7%?

Regards


Leigh



At 03:16 PM 17/9/97 +0000, you wrote:
>John,
>
>
>> No. I am speaking only of an angered populace like those who deposed
>> Ceaucescu [Sp?] and the marching mothers of Argentina who aroused enough
>> sympathy to get action. [They did, didn't they?]
>
>I'd like to tell you a few things about popular movements in my
>country (Argentina). The marching mothers of Plaza de Mayo had
>nothing to do with the changes in our economy. In fact, no organized
>group had to do with it. If things have changed here, it's due to the
>hyperinflation. Only after having 289% of inflation in a month, we
>realized things had to change. It were the supermarkets ransacking
>that showed us we couldn't live with such a high inflation. For the
>first time in decades, we changed governments in a legal and
>organized way. A democratic president left government 6 months
>earlier than expected and another democratically chosen president
>came into office. There was no revolution in the streets, the
>revolution was in our minds.
>
>
>>
>> > I agree with you that the backing is a virtual insurance, it's
>> > just a promise of well behaviour and only if the governments acts
>> > correspondence with its promise the mechanism will work. You said
>> > that vigilance is necessary and having a fixed exchange rate and
>> > a fixed convertion rate makes the vigilance easier.
>>
>> Yes. My preference for a measure like the CPI as the standard has the
>> same "virtuality" as a gold standard, but it has the advantages of:
>>
>> 1) It consists of enough variety to prevent the government from creating
>> an appearance of a stable currency without an actuality of same. With
>> gold as the standard a government can set the price high enough to be
>> certain that at least some of the supply is surrendered to the
>> government to be held in idle storage rather than meeting some other
>> demand. Inflation can then rage on until it reaches a point of
>> insufficient supply at the "official" price to leave a respectable
>> quantity in government vaults. Then the government either devalues the
>> currency or [as Nixon did in the U.S.] close the gold window and let the
>> currency float.
>>
>> 2) It most nearly reflects the actual value in use for exchanges.
>>
>> 3) It is [At least in the U.S.] the measure most used for contract
>> adjustments that are of sufficient duration for inflation to be of
>> concern.
>
>
>Using a CPI as standard works well in a low inflation country. But
>when you're trying to  keep stable the value of the currency in a
>high inflation country or in country with very recent inflationary
>memory, it doesn't work at all.  Your third remark helps me to prove
>my point, you're thinking on the basis of an economy were inflation
>is eventually of concern and you'll eventually adjust contracts. When
>there's high inflation eventuality happens everyday.
>In your first remark you suggested a goverment devaluation or
>changing into a free float  after getting enoug gold in its vaults.
>The virtue of the gold standard or any other commodity backing is
>that it gives a clear signal to people. If the government devaluates
>or changes into a free float it destroys the confidence that might
>have generated. The gold standard is a symbol, it represents a
>promise given by the government.  It gives people the possibility of
>protecting themselves, in case currency loses value, by converting
>the currency.
>
>
>Laura
>
>
______________________________________________________________________
Leigh Harkness                                      leigh@xxxxxxxxxxx