4 ms·
This is a pretty standard example of capital controls being implemented in non-free countries by the bureaucratic elite in order to impose hidden costs on their
by abtinf 14y ago
This is a pretty standard example of capital controls being implemented in non-free countries by the bureaucratic elite in order to impose hidden costs on their people and to prevent the people from responding rationally to terrible economic policy.
The reasons are easy to understand. People are willing to take on the risk of owning hard currency (gold, dollars, euros) if they believe that their nominal currency has greater risk. For example, if a government is spending recklessly, there is serious risk of inflation. Or, if the government has forced interest rates to be too low (well below inflation), then people want to hedge against that too.
By forbidding the ownership of hard currency, the government forces individuals to use the local currency. They must save in this currency, which drives down interest rates and provides cheap capital to their government. And it prevents (for a short time) exchange rates from significantly changing, because it effectively limits the supply of the local currency and reduces demand for hard currency.
EDIT: I forgot to mention the other reason governments do this - it's a great way to force the people to bear the burden of paying down national debt. If the country has significant debt, then the bureaucratic elite have a huge incentive to pursue a policy of inflation, so that the debt becomes less burdensome over time. This well written article from The Economist explains how the west used this technique in the post-ww2 era: http://www.economist.com/node/18834259?story_id=18834259 http://www.economist.com/node/18834259?story_id=18834259
- adjwilli 14y agoArgentina has direct elections of the president, multiple political parties, and mandatory voting. How does that make them a "non-free country"? If anything that makes Argentines more free than citizen of the United States. Also what is your criteria for a hard currency vs a soft currency? It seems weird to group the US Dollar and Euro with gold and put the Argentine Peso in a separate group.
- JumpCrisscross 14y agoA hard currency is a globally traded currency expected to serve as a reliable store of value. The Argentine peso isn't widely enough traded, not to mention subject to devaluation, to even remotely qualify as a hard currency.
- forgottenpaswrd 14y agoI won't consider mandatory voting, someone forcing you to vote, freedom at all. I was in Argentina the last election, I saw buses of poor people that were given bocadillos and $10 with instructions of who they should vote. Argentina is going downhill. I know, I have family there.
- wslh 14y agoI think you can't differentiate between political theory and realpolitik. Having elections don't make a country free. We can argue infinitely about the same on other places but Argentina has a long history of constraining individual freedom and policies against productive companies
- _delirium 14y ago> force the people to bear the burden of paying down national debt Unless they default, aren't the people going to have to pay down the national debt one way or another? The only real question is what mechanism to use, and which part of the population pays how much, since there are different winners or losers depending on what method you pursue (e.g. inflating it away, vs. paying it out of tax revenue).