Consequences of Abandoning Argentina's 2001 Currency Peg

Argentina's Fiscal Consolidation Under the 1990s Currency Board

A country with a history of high inflation implements a currency board, fixing its currency 1-to-1 with the U.S. dollar. The policy initially succeeds in curbing inflation and enforcing government budget discipline. However, over the next five years, the country's average annual inflation rate is 6%, while the U.S. inflation rate is 2%. Assuming the 1-to-1 peg is maintained, what is the most likely economic consequence that will threaten the long-term viability of this policy?

A country with a history of hyperinflation and large fiscal deficits implements a currency board, pegging its currency to a stable foreign currency. Arrange the following events in the correct causal sequence that leads from the policy's initial success to its eventual collapse.

Fiscal Discipline Under a Currency Board

Evaluating the Argentine Currency Board