Argentina and the Tequila Effect

Central Banking, Vol. VI, No. 4, Spring 1996

6 Pages Posted: 21 Jan 2013

See all articles by Steve H. Hanke

Steve H. Hanke

Johns Hopkins University - Department of Economics

Date Written: 1996

Abstract

The shock imposed on Argentina by Mexico’s financial crisis had four distinct phases (Banco Central, Republic of Argentina, 1995). The first phase lasted from 20 December 1994 through February 1995. External drains form the currency board-like system occurred, with the central bank’s liquid reserves falling from $15.8 bn before the crisis to $13.3 bn at the end of February. (Note that Argentina’s system is not orthodox because only 80% of the system’s reserves must be held in dollar denominated assets issued by foreign governments. These are called “liquid reserves.” The remaining reserves must be dollar denominated, but can be issued by the Republic of Argentina. Both types of reserves must be marked-to-market (valued) at current prices.) There were also internal drains of peso deposits from commercial banks. Wholesale banks and small retail banks were most strongly affected. Two small wholesale banks, with a high proportion of their assets in Argentine government bonds, were suspended.

Keywords: Steve Hanke, Argentina, Mexico, Central Banking

Suggested Citation

Hanke, Steve H., Argentina and the Tequila Effect (1996). Central Banking, Vol. VI, No. 4, Spring 1996. Available at SSRN: https://ssrn.com/abstract=2204651

Steve H. Hanke (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-7183 (Phone)
410-516-8996 (Fax)

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