IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-00972721.html
   My bibliography  Save this paper

Money Reconstructed: Argentina and Brazil after Hyperinflation

Author

Listed:
  • Jérôme Sgard

    (CERI - Centre de recherches internationales (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

Under high inflation, money's dual function as a unit of account and a unit of payment are split and transferred on alternate supports--either a foreign currency (as in Argentina) or domestic indices (as in Brazil). This paper compares the 1994 Brazilian Plano Real, which rebuilt a working, national monetary order, and the bimonetary Argentine Currency Board regime, whose 2001 collapse caused a major dislocation of both the real economy and the financial sector. "Pesification" is analyzed as an improvised attempt to rebuild a single, national money. Whereas returning to peso pricing on domestic markets proved to be surprisingly easy, the conversion of financial contracts (deposits, credits, bonds, etc.) was a disaster: state intervention into existing private contracts opened the way for a large-scale but opaque redistribution of private wealth. The experience of monetary destruction and reconstruction sheds light on how policy or regulatory intervention interacts with private choices. Policy efficiency is conditional on the willingness of agents to continue using the national money. Yet states that use money as a policy instrument may affect the agents perception that its stability is a condition for their own continuing private capacity to calculate and optimize. The effects of hyperinflation suggest that this constitutive ambiguity may actually result in the destruction of money. Keywords: Argentina, Brazil, hyperinflation, monetary reform, monetary theory JEL classification: E31, E42, E65

Suggested Citation

  • Jérôme Sgard, 2010. "Money Reconstructed: Argentina and Brazil after Hyperinflation," Working Papers hal-00972721, HAL.
    • Handle: RePEc:hal:wpaper:hal-00972721
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-00972721
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-00972721/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Garcia, Marcio G. P., 1996. "Avoiding some costs of inflation and crawling toward hyperinflation: The case of the Brazilian domestic currency substitute," Journal of Development Economics, Elsevier, vol. 51(1), pages 139-159, October.
    2. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "Large Devaluations and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 742-784, August.
    3. Jean Cartelier, 2007. "The hypostasis of money: an economic point of view," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 31(2), pages 217-233, March.
    4. Jean Cartelier, 2006. "Comptabilité et pensée économique. Introduction à une réflexion théorique," Revue économique, Presses de Sciences-Po, vol. 57(5), pages 1009-1032.
    5. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98, National Bureau of Economic Research, Inc.
    6. Mr. Robert Rennhack & Mr. Masahiro Nozaki, 2006. "Financial Dollarization in Latin America," IMF Working Papers 2006/007, International Monetary Fund.
    7. Joel Bogdanski & Paulo Springer de Freitas & Ilan Goldfajn & Alexandre Tombini, 2002. "Inflation Targeting in Brasil: Shocks. Backward-Looking Prices and IMF Conditionality," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 13, pages 539-582, Central Bank of Chile.
    8. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping hyperinflations past and present," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 122(1), pages 1-47, March.
    9. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-775, August.
    10. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    11. Charles W. Calomiris & Andrew Powell, 2000. "Can Emerging Market Bank Regulators Establish Credible Discipline? The Case of Argentina, 1992-1999," NBER Working Papers 7715, National Bureau of Economic Research, Inc.
    12. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
    13. Mr. Guillermo Calvo & Mr. Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries: An Introduction," IMF Working Papers 1992/040, International Monetary Fund.
    14. Michael Mussa, 2002. "Argentina and the Fund: From Triumph to Tragedy," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa67, February.
    15. Listfield, Robert & Montes-Negret, Fernando, 1996. "Brazil's efficient payment system : a legacy of high inflation," Policy Research Working Paper Series 1680, The World Bank.
    16. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
    17. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    18. Gerald Caprio & Michael Dooley & Danny Leipziger & Carl Walsh, 1996. "The lender of last resort function under a currency board: The case of Argentina," Open Economies Review, Springer, vol. 7(1), pages 625-650, March.
    19. Michael Bruno & Guido Di Tella & Rudiger Dornbusch & Stanley Fischer, 1988. "Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022796, April.
    20. Federico A. Sturzenegger, 1991. "Description of a Populist Experience: Argentina, 1973-1976," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 77-120, National Bureau of Economic Research, Inc.
    21. Bell, Stephanie, 2001. "The Role of the State and the Hierarchy of Money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 25(2), pages 149-163, March.
    22. International Monetary Fund, 1999. "Brazil: Selected Issues and Statistical Appendix," IMF Staff Country Reports 1999/097, International Monetary Fund.
    23. Bomberger, William A & Makinen, Gail E, 1983. "The Hungarian Hyperinflation and Stabilization of 1945-1946," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 801-824, October.
    24. Mr. Taimur Baig & Mr. Ilan Goldfajn, 2000. "The Russian Default and the Contagion to Brazil," IMF Working Papers 2000/160, International Monetary Fund.
    25. Jeffrey Sachs & Alvaro A. Zini Jr., 1996. "Brazilian Inflation and the Plano Real," The World Economy, Wiley Blackwell, vol. 19(1), pages 13-37, January.
    26. Albert Fishlow, 1974. "Indexing Brazilian Style: Inflation without Tears?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(1), pages 261-282.
    27. Kiguel, Miguel A & Liviatan, Nissan, 1988. "Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America," The World Bank Economic Review, World Bank, vol. 2(3), pages 273-298, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:wpspec:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    2. repec:spo:wpmain:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    3. repec:hal:spmain:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    4. repec:spo:wpecon:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    5. Jérôme Sgard, 2010. "Money Reconstructed: Argentina and Brazil after Hyperinflation," SciencePo Working papers Main hal-00972721, HAL.
    6. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    7. repec:spo:wpmain:info:hdl:2441/6961 is not listed on IDEAS
    8. Dornbusch, Rudiger & Fischer, Stanley, 1993. "Moderate Inflation," The World Bank Economic Review, World Bank, vol. 7(1), pages 1-44, January.
    9. Jérôme Sgard, 1999. "Crise financière, inflation et Currency Board en Bulgarie : les leçons d'une transition indisciplinée," Post-Print hal-03585877, HAL.
    10. repec:hal:spmain:info:hdl:2441/6982 is not listed on IDEAS
    11. Jérôme Sgard, 1999. "Crise financière, inflation et Currency Board en Bulgarie : les leçons d'une transition indisciplinée," SciencePo Working papers Main hal-03585877, HAL.
    12. Jérôme Sgard, 1998. "Inflation, stabilisation et prix relatifs en Argentine et au Brésil," Post-Print hal-03585833, HAL.
    13. repec:hal:spmain:info:hdl:2441/6961 is not listed on IDEAS
    14. Vegh, Carlos, 1991. "Stopping High Inflation: An Analytical Overview," MPRA Paper 20175, University Library of Munich, Germany.
    15. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614, Elsevier.
    16. Jérôme Sgard, 1998. "Inflation, stabilisation et prix relatifs en Argentine et au Brésil : l'expérience des années quatre-vingt-dix," Revue Économique, Programme National Persée, vol. 49(1), pages 239-256.
    17. Jérôme Sgard, 1998. "Inflation, stabilisation et prix relatifs en Argentine et au Brésil," SciencePo Working papers Main hal-03585833, HAL.
    18. Ardo H. Hansson, 1991. "The Emergence and Stabilization of Extreme Inflationary Pressures in the Soviet Union," WIDER Working Paper Series wp-1991-093, World Institute for Development Economic Research (UNU-WIDER).
    19. repec:spo:wpmain:info:hdl:2441/6982 is not listed on IDEAS
    20. Emilio Ocampo, 2021. "A Brief History of Hyperinflation in Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 787, Universidad del CEMA.
    21. Vittorio Corbo & Stanley Fischer, "undated". "Lessons from the Chilean Stabilization and Recovery," Documentos de Trabajo 158, Instituto de Economia. Pontificia Universidad Católica de Chile..
    22. Vieira, Fabrício A.C. & Holland, Márcio & Resende, Marco F., 2012. "Financial dollarization and systemic risks: New empirical evidence," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1695-1714.
    23. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    24. Pradeep Dubey & Siddhartha Sahi & Martin Shubik, 2014. "Minimally complex exchange mechanisms: Emergence of prices, markets, and money," Department of Economics Working Papers 14-01, Stony Brook University, Department of Economics.
    25. Geoffrey Hodgson, 2002. "The Evolution of Institutions: An Agenda for Future Theoretical Research," Constitutional Political Economy, Springer, vol. 13(2), pages 111-127, June.
    26. Rapetti, Martin & Palazzo, Gabriel & Waldman, Joaquin, 2023. "Planes de estabilización: Evidencia de América Latina [Stabilization plans: Evidence from Latin America]," MPRA Paper 118910, University Library of Munich, Germany.
    27. Roberto Frankel & Martín Rapetti, 2010. "A Concise History of Exchange Rate Regimes in Latin America," CEPR Reports and Issue Briefs 2010-11, Center for Economic and Policy Research (CEPR).
    28. Wolf, Holger C., 2001. "Inflation and stabilization in Latvia: 1918-1922," Economic Systems, Elsevier, vol. 25(1), pages 33-50, March.

    More about this item

    Keywords

    argentina; brazil; hyperinflation; monetary reform; monetary theory jel classification: e31; e42; e65;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00972721. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.