Gaucho Banking Redux

36 Pages Posted: 31 Jan 2003 Last revised: 20 Jun 2009

See all articles by Gerardo della Paolera

Gerardo della Paolera

American University of Paris

Alan M. Taylor

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: January 2003


Argentina's economic crisis has strong similarities with previous crises stretching back to the nineteenth century. A common thread runs through all these crises: the interaction of a weak, undisciplined, or corruptible banking sector, and some other group of conspirators from the public or private sector that hasten its collapse. This pampean propensity for crony finance was dubbed gaucho banking' more than one hundred years ago. What happens when such a rotten structure interacts with a convertibility plan? We compare the 1929 and 2001 crises the two instances where rigid convertibility plans failed and reach two main conclusions. First, a seemingly robust currency-board can be devastated by an ill-conceived approach to the problems of internal and external convertibility (or, to rephrase Gresham, bad inside money drives out good outside money'). Second, when modern economic orthodoxy collides with caudillo-style institutional backwardness, a desperate regime with its hands tied in both monetary and fiscal domains will be sorely tempted by a capital levy' on the financial sector (for, as Willie Sutton said when asked why he robbed banks, because that's where the money is).

Suggested Citation

della Paolera, Gerardo and Taylor, Alan M., Gaucho Banking Redux (January 2003). NBER Working Paper No. w9457, Available at SSRN:

Gerardo Della Paolera

American University of Paris ( email )

31 Avenue Bosquet
Paris, 75007

Alan M. Taylor (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)


National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States


Centre for Economic Policy Research (CEPR)

United Kingdom


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