Development of the Banco Central in Argentina's Economy

Abstract

The history of the Argentine central bank, the Banco Central, coincides with a dynamic period in the evolution of the Argentine economy; a period encompassing recovery from a depression, the disruptions of two world wars and, underlying the whole, a gradual transformation of the Argentine economy from one predominantly agricultural and pastoral to one revealing surprising industrial potential. Accordingly, the task of relating the development of the Banco Central to its peculiar environment involves the analysis of its operations through a wide range of financial situations and economic or social problems. Argentina has shared in full measure most of the problems facing underdeveloped, raw material producing nations. Argentine exports historically have been composed of products possessing a relatively low elasticity of demand and rather responsive to cyclical fluctuations in consuming countries. Imports, on the other hand, have been primarily finished manufactured goods enjoying a greater degree of price and volume stability. As a consequence, the Argentine balance of trade has been subject to erratic fluctuations. Fluctuations in the value of international trade and the volume of international capital movements, the balance of payments situation, also have contributed to internal monetary and financial instability. Consequently, the Argentine economy was in a poor position to withstand the world-wide depression of the 'thirties. Both the physical volume and the value of Argentine exports declined as the depression struck her major markets; a decline that was by no means neutralized by reductions in imports. Consequently, Argentinians were forced to deplete gold and foreign exchange reserves to meet payments abroad, which resulted in a severe bank credit contraction and numerous bank failures.1 Naturally, Argentine officials sought means to protect the domestic banking structure from future gold outflows, but in the interim between the onset of the depression and the bank reform proposals of 1935 other techniques were used to check the deterioration in the Argentine international trade position. The government resorted to a semi-barter form of trade agreement negotiation, granted special exchange rates to importers purchasing goods from reciprocating countries, and accepted payment in goods or blocked exchange where such measures resulted in increased exports. Obviously, however, the peso was overvalued, so as a stop-gap measure designed to avoid internal deflation, the currency was depreciated in November of 1933 until it was valued at 50 per cent of its 1929 parity with gold standard currencies.2 Unfortunately, these measures proved inadequate.