22 December 2017 EM Currency Handbook 2018: Still Fuel in the Tank Argentina Argentine FX arrangements were plagued by monetary mismanagement and inflation throughout most of the twentieth century leading to periodic large devaluations. The Peso Ley replaced the Peso Moneda Nacional in 1970 at a rate of 100 to 1, which was itself replaced by the Peso Argentino at a rate of 10,000 to 1 in 1983. In 1985, this was again replaced by the Austral at a rate of 1,000 to 1, though this soon collapsed via hyper- inflation. Beginning April 1st 1991, Argentina operated a currency board system with the Peso (converted from the Austral at 10,000 to 1) pegged to the dollar at the rate of one to one, every peso in principle backed by hard currency reserves. The "Convertibility Plan," was conceived to solve Argentina's chronic inflation problems, and throughout the first half of the 1990s the system underpinned an economic boom, with inflation declining to single digits. However, as the decade wore on, the real appreciation of the dollar placed the system under strain as REER became increasingly overvalued. The combination of persistent budget imbalances, negative terms of trade shocks, and inflexible monetary policy eroded credibility and culminated with the abandonment of the currency peg on January 6th, 2002. Floating the currency led to a 70% devaluation of the Peso, taking it from one of the most overvalued to one of the most undervalued currencies in the world. Since then, the exchange rate has been tightly managed and capital flows strictly controlled. As the economy recovered from the 2002 crisis, inflation increased once again (albeit under-reported by the government since early 2007), undermining the competitiveness of the exchange rate. During the global crisis of 2008, the authorities faced the challenge of allowing the currency to depreciate but without triggering a sharp currency substitution. The Central Bank of Argentina (BCRA)