Argentina’s monetary policy calls for a change
By Guillermo Samuel SALAS[1]

1. Argentina's Central Bank dualism

The Central Bank of the Argentine Republic (BCRA) acts in compliance with applicable statutory law and other detailed regulations, being appointed as the highest  monetary and banking authority.[2] Until the recently enacted National Congress Law 25.561 identified as  "public emergency and currency exchange reform", the monetary-financial  system was ruled by an independent BCRA and the "convertibility plan"[3], <id est> an unorthodox currency board. BCRA´s independence began in 1994, though self-governance of this legal public entity should be mentioned as "autonomy"[4], for consistency between federal government economic policies and monetary policies of BCRA has been always seen by public officials as a basic need for the transacted monetary business and the public affairs of Argentina. Thus, rules for coordination allow Head of the Ministry of Economy to participate in regular meetings of BCRA's Board of Directors, albeit without the right to vote any motion.

Argentina's record of devaluation and depreciation[5] is the best evidence of a repeated monetary failure. An embarrassing dossier suggests that the BCRA´s current dual role should be limited to just one: the banking supervisory functions. Indeed, notwithstanding the convenience of maintaining an autonomous Central Bank in order to control other commercial, mortgage or investment Banks[6], Argentina's administration must self-eliminate its powers to issue local currency. BCRA should cease making monetary policy, being indispensable the argentine Peso be abolished as legal tender. Replacing the Peso with the U.S. dollar is a valid option to be tried. It has been proposed by prestigious economists[7] as a sound alternative, though it seems quite clear that in Argentina nothing will work well unless severe fiscal discipline becomes true. Financial problems of the governing body have indeed caused devaluation of the Peso, preventing the nation from having a prosperous environment for better economic evolution. Complete dollarization will neither risk people's sovereignty granted in Argentine national Constitution, nor shall endanger the political independence of the State in any manner. It will just stop BCRA from financing government deficits through the printing of note currency.

Whereas in telecommunication the relevant point is that society may communicate by using adequate services (no matter if technology is local or foreign), when it comes to money, the most important issue is the existence of instruments of payments that may serve the purpose of providing financial and economic stability. It does not matter whether or not fibre or money paper is printed at home or abroad.  National currency notes (billetes "peso") is not anything else but cotton and linen, not to be confused with a flag fragment. Material made by compressing fibres, used to produce argentine notes (wood, filaments, water, adhesive paste and press) is processed and treated in  Argentina´s major commercial partner and neighbor (Brazil) and nobody complains about national sovereignty being threatened.

Monetary and currency exchange restrictions were imposed in Argentina. Its implementation has been locally called “little corral”[8] and “big corral”[9], both implicating a giant violation of property rights, perpetrated by Government. A mockery of the "rule of law". Bank deposits were frozen to impede massive withdrawals. Words once said by professor Wilson B. Brown[10] be remembered: a government which seizes people's assets, breaks contracts, and shows people how wrong they were to trust banks, does very serious long run damage to the economy.

2. Acknowledge Russia's example

Russian Soviet Federal Socialist Republic (RSFSR)[11] as accurately explained in detail by Bruce W. Bean[12], had a command economy that switched to a more market oriented one. Big steps and significant process of legal system adaptation was accomplished, beginning with Russian Civil code, codified three times during 19^th century. There is no way to convert an economy dominated by military oriented production into consumer economics and to open market, without new legislation being passed to ensure the benefit of right recognition of "private property rights"[13].

The truth is that in 1998 Russia went through a harsh financial-economic crisis, with social and political turmoil. Nevertheless, decision to restructure public national debt was made[14], and therefore RSFSR in  2000 resumed progressive economic development, with the implementation of additional structural reforms, opening the economy together with a rigorous fiscal and monetary discipline. Oil exports increased, <a fortiori> letting Russia become one of the few countries experiencing the highest economic growth in year 2001.

Laws on property were enacted in RSFSR, authorizing private ownership by individuals of residential premises and the retention by enterprises of net profit and its distribution, whether as stock or cash[15]. Remarkable changes indeed, for a nation with  strong soviet cultural patterns.  

The contribution to the initial charter capital of an LLC, may be made in Russia, in rubles or in foreign currency. Cash contributions in foreign currency no longer require prior permission from the Central Bank of Russia (herein after CBR)[16].

Common current currency transactions do not need CBR licensing. Instead, operations related to movement of capital do, because transactions not defined as current might involve national policies in which CBR's procedures and control are justified. Specially if the case is subjet to minimum contact analyses, and  an international case could arise.

In Argentina exporters must liquidate[17] foreign currency received, at any local financial institution, converting 100% of what they are paid in U.S. dollars into devaluated argentine Pesos. In Russia, only 50% is subject to compulsory conversion[18]. 

In RSFSR, export-trade liquidation must occur within 7 days following receipt of foreign currency proceeds. In Argentina, mandatory conversion requirement should be performed within 5 to 180 days, and information must be reported to BCRA (rule A-3472) otherwise criminal prosecution might begin[19].

There are no restrictions on Russian residents as to obligate themselves in foreign currency, whereas in Argentina transactions of that kind have obstacles and obstruction.

3. Conclusion.

Driving wrong direction means paying high costs. No nation is capable of either maintaining or  sustaining a solid financial system, when its own administration causes  discretionary changes regarding the general ground rules of monetary policies. Argentina is not making good use of those reforms started as from 1991. In my opinion, complete dollarization will channel the economy, making the country more flexible and competitive for international commerce, much more attractive to foreign investments seeking business opportunities. The "U.S. dollar" circulating as the only one official currency will place and confine government into a permanent “corral” of sound fiscal order.  Russia´s most recent experience shows the advantages of market liberalism and the validity of Jeffersonian philosopy: peace, individual liberty, free market and limited government.