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THE ARGENTINE STRAW MAN : A RESPONSE TO CURRENCY BOARD CRITICS Steve H. Hanke It is noticeable, on the one hand, that a large part of the best work on Money is topical. It has been prompted by particular episodes, by particular experiences of the writer’s own time. —Sir John Hicks (1967: 156) Sir John certainly would have agreed that particular experiences prompt faulty work on Money, as well. Argentina’s recent crisis is a case in point. It has spawned a deluge of commentary on alternative exchange rate regimes. The majority of this writing (aimed at both an academic and lay readership) contains elementary analytical and fac- tual errors.1 The most oft-repeated and egregious errors are the fol- lowing: • Argentina employed a currency board from April 1, 1991, until January 6, 2002, that rendered the central bank, the Banco Cen- tral de la República Argentina (BCRA), incapable of employing a domestic monetary policy. • The peso’s one-to-one exchange rate with the U.S. dollar was overvalued and made Argentine exports uncompetitive in world markets. • The inflexible currency board and overvalued peso caused the Argentine crisis. A three-part reform consisting of a peso devalu- ation, “pesofication” of the economy, and a freely floating ex- change rate would reinvigorate the economy. Cato Journal, Vol. 23, No. 1 (Spring/Summer 2003). Copyright © Cato Institute. All rights reserved. Steve H. Hanke is Professor of Applied Economics at the Johns Hopkins University and a Senior Fellow at the Cato Institute. The author thanks Kurt Schuler for his comments and Matt Sekerke for research assistance. 1Not all of the works on the Argentine crisis suffer from these egregious errors. See Calvo, Izquierdo,