If there ever was a hall of fame of countries that resort to money printing as a regular instrument of public finance, Argentina would definitely merit induction. Reading Vito Tanzi’s insightful and engaging book, Argentina: An Economic Chronicle, I came across a story that encapsulates this.
As the director of Fiscal Affairs at the IMF during the 1980′s and 1990′s, Tanzi regularly consulted the Argentinian government, in the process becoming intimately familiar with the Â country’s economic ills. Afterwards, Tanzi worked for the Italian government and it was during this stint that he agreed to meet a man who had inherited the key to a safety box from his uncle.
Inside the box was 40 billion pesos. Believing that he had an inherited an enormous fortune, this man arranged to have the pesos transferred to a safety deposit box in a Swiss bank. The man spent a significant amount to ensure the security of this transfer. He came to see Tanzi in order to find out how much the pesos were worth.
Tanzi asked a former colleague of his at the IMF look into it. The pesos, it turned out, were from 1980 and no longer in circulation. Indeed, they ceased to be legal tender. But even if they were legally acceptable, the 40 billion pesos would now be worth US$ 1. That is not a misprint. Yes, 40 billion Argentinian pesos from 1980 are now worth a single American buck.
Obviously, the man who inherited the peso filled box was unaware of Argentina’s sad monetary history and, more generally, of the way central bank have tended to systematically cheapen the currencies under their control. Â If he had been cognizant of these facts, he would’ve thought twice before incurring the expense of moving the pesos to Switzerland.