Dollarization

[Colin Danby <danbyc@xxxxxxx>]

Hello Alan:

Just three quick points.

> are
> you claiming that Argentina's macroeconomic performance
> has been worse since it adopted a currency board than
> in the preceeding period?

1. A more interesting comparison would be to other regional economies
over the same period.

> Despite this, export performance looks pretty good and
> even overall performance is only moderately bad

2. Keep in mind that there has been a fierce and largely successful
effort by Argentina's government to reduce real wages over the last
decade.  I don't have poverty data at hand -- perhaps someone else does
--  but the effects of very low per capita output growth and a declining
wage share cannot be good.  So it is hardly surprising the country is
exporting.    Also note that the effort to reduce living standards was
carried out in the name of keeping the exchange rate parity -- exchange
rate arrangements must be seen in the context of other policies.

For the above 2 points  the distinctions between a fixed exchange rate
plus capital mobility, a currency board, and dollarization are not very
important.  The case for the latter arrangments is that they are somehow
more "credible" because it's more painful to go off them.  But the above
are points about the damage done while you are *on* them.

> If Greenspan were setting Argentina's interest rates,
> and if the currency board were completely credible,
> Argentina would have the same interest rates as the US.

3. Can you unpack "credible"?  What is the implicit political economy?
What are the implicit institutional assumptions?  I would humbly suggest
that this "completely credible" is impossible, given that the Argentine
central bank cannot make dollars.

Best, Colin