Stardate 20020211.1214

(On Screen): Irrespective of Argentine government policy, it occurs to me that the nation might end up dollarizing anyhow. I have no idea how likely this is, but it seems to me that if the confidence of the nation in the peso is shattered, then there would be a run on the peso with everyday citizens switching to dollars, and stores pricing their products in dollars and only accepting pesos at whatever the current exchange rate is.

The big risk if that happens is collapse of the banks. The nation needs to have people deposit their excess cash in banks so it can be loaned back out and kept in circulation. But with the banking crisis there, and with dollar-deonominated accounts having been switched to devalued pesos, it's hard to see how people will trust banks there for quite a while with their dollars. That would mean that the nation could suffer a liquidity crisis, because hundred dollar bills hidden under the mattress do not help the economy.