Douthwaite-Darley (May 2003)

Argentina is particularly interesting because it illustrates what can happen in a sophisticated country when the economic system collapses. What happened in Argentina, as most people know, was that they tied their currency, the peso, to the U.S. dollar on a rigid one-for-one basis. This worked very well, initially; it cured inflation, which was running at 5000% per annum when they instituted that move; it brought it right down, and it led to a period of prosperity.

But what happened was other countries in the region devalued their currencies, and consequently the peso rose in value, and Argentine exports became uncompetitive. And so people began to realize, slowly, that this rigid link between the U.S. dollar and the peso wasn't going to be able to be held. And so those people who could, the better off, began moving their money across the border into Uruguay, so they would be taking out dollars from Argentina and putting them in dollar accounts in Uruguay banks. And because they were withdrawing dollars, this meant that there were less pesos in circulation, and so the money supply was shrinking, and this in turn, meant that the level of business that it was possible to carry on in Argentina began to shrink, as well. And so unemployment began to grow, and people became increasingly interested in LETS- type systems that they were operating in Argentina.

In fact, those systems, which were run on the traditional lines, recording every transaction, began to be overwhelmed by the number of people participating in them, and it was quite impossible to record every transaction. So what they did was they gave each person who joined 50 creditos. A credito was worth a peso was worth a dollar. And they said - go away, that's our money, trade with that. And this worked reasonably well for a time, and there was a great boon in that sort of trading, but as things worsened in the formal economy, more and more people began to, out of desperation, join these credito systems, and they were overwhelmed; in fact, everybody who joined got their 50 notes and went away and spent them, but a lot of the people who joined subsequently just didn't have the skills or perhaps, even the wish, to trade themselves, and so there was an inflation, too much money was put into the alternative system, and this caused many of the local trading systems to run down.

Transcribed by Rita Wiltsie