Origins of Banking Globalization: The Experience
of Spain and Latin America
Santander, February 17-19, 2016
THE END OF THE CURRENCY BOARD AND BIRTH OF
THE CENTRAL BANK .
ARGENTINA DURING THE GREAT DEPRESSION, 1929-1935
Mónica Gómez
THE SYSTEM
CURRENCY BOARD
(1890)
Issuance monopoly
Convertible Currency
Currency found
Backing of notes already
in circulation.
at a fixed relation (2,27) with the ‘peso oro’
Absence of an independent MP
BANK OF THE NATION
OTHER BANKS
(1891)
Commercial bank with
some CENTRAL BANK
functions.
Domestic and foreign
STATE
THE GREAT
DEPRESION’S
IMPACT
ARGENTINA’S BALANCE OF PAYMENTS, 1928-1934
1.200
1.000
800
600
400
200
0
-200
-400
1928
Exports
1929
1930
Imports
1931
Capital account
1932
1933
Reserves change
1934
THE GREAT
DEPRESSION’S
IMPACT
CHANGES ON BASIC RULES
Convertibility is suspended, December 1929
The Currency Board is authorized to grant rediscounts through Bank of th
Nation, April 1931
The Currency Board is authorized to lend to the National State, through
Empréstito Patriótico’s titles, May 1932
Exchange control is established: First stage, October 1931
Second stage, November 1933
BOARD’S BEHAVIOR
BEFORE THE EXCHANGE
CONTROL
dec 1929- mar 1931
DM > 0
DM < 0
DM = 0
N° Obs.
DM>DR DM = DR DM<DR
DM>DR DM = DR DM<DR
DR > 0
DR = 0
DR < 0
N° Obs.
1
0
0
0
0
0
3
4
0
0
0
0
0
0
1
1
1
0
0
1
8
0
1
11
2
0
0
1
8
0
5
16
apr 1931-oct 1931
DM > 0
DM>DR DM = DR DM<DR
DM = 0
DM < 0
DM>DR DM = DR DM<DR
N° Obs.
DR > 0
0
0
0
0
0
0
0
0
DR = 0
0
0
0
0
0
0
0
0
DR < 0
2
0
0
0
5
0
0
7
N° Obs.
2
0
0
0
5
0
0
7
BOARD’S BEHAVIOR
BEFORE THE EXCHANGE
CONTROL
-100
SECOND STAGE
nov 1933-dec 1934
80
50
60
40
40
30
20
0
-50
0
50
-20
-40
-60
-80
-100
Change in domestic assets
100
Change in High-powered-money
Change in high-powered-money
FIRST STAGE
mar 1932-oct 1933
20
10
0
-40
-20
0
20
-10
-20
-30
-40
Change in domestic assets
40
60
BANK SYSTEM
BANK RUN
(annual growth rate of deposits)
1929
1930
1931
1932
1933
1934
Bank of the
Nation
-4,9%
-1,7%
-10,2%
3,4%
5,1%
-2,2%
LIQUIDITY: observed vs counterfactual
Domestic
Bank
Foreign Banks
Total
-1,4%
-0,9%
-10,0%
-5,2%
-1,7%
2,2%
4,1%
12,8%
-7,5%
0,2%
-8,5%
-10,1%
-1,9%
1,5%
-9,5%
-0,4%
-0,4%
-2,4%
1200
1000
800
600
400
200
0
I
III
I
III
I
III
I
III
I
III
I
III
I
III
I
III
Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim Trim
1928 1928 1929 1929 1930 1930 1931 1931 1932 1932 1933 1933 1934 1934 1935 1935
Observed values
Counterfactual values
STATE’S SITUATION
Financial and primary result of the National Public
Administration (% GDP)
3
2
1
0
-1
-2
-3
Financial Result
Primary result
1934
1933
1932
1931
1930
1929
-4
FINANCING THROUGH
THE SYSTEM
1)
BANK OF THE
NATION
BALANCE (debit) TREASURY ACCOUNT
STATE
EXTRAORDINARY FINANCING
400
1928
Debit
balance
NTA
0
44300
1929
20500
44800
1930
113500
45400
Exceeds
1931
146600
45900
Exceeds
1932
123700
46800
Exceeds
1933
123700
47100
Exceeds
1928 1929 1930 1931 1932 1933 1934
1934
123700
47200
Exceeds
1935
123700
47184
Exceeds
Official loans
Public Funds
Rediscount treasury bills
Year
350
Legal
Limit
300
250
200
150
100
50
0
FINANCING THROUGH
THE SYSTEM
2)
CURRENCY
FUND
THE FUND’S MOVILIZATION IN 1931
Almost entirely: 30 millIons pesos oro
Debt payment with:
Baring Brothers & J. Morgan Grenfell
Chatham Phenix
FUND
FINANCING THROUGH
THE SYSTEM
CURRENCY
BOARD
3)
EMPR. PATRIÓTICO’S* ISSUING
STATE
FLOATING DEBT/CONSOLIDATE DEBT
60%
170
165
50%
160
40%
155
150
30%
145
20%
140
135
10%
130
Jun
Sep Dec Mar Jun
1932
Sep Dec Mar Jun
1933
1934
0%
1928
1929
*Bond issuance by empréstito patriótico’s titles. Trimestral balances
1930
1931
1932
1933
1934
CHANGE IN THE
SYSTEM
THE BEGINNING OF THE END
OF THE CURRENCY BOARD
SYSTEM AND BIRTH OF
ARGENTINA’S CENTRAL BANK