Can you do that?

The closest experiment along these lines is probably Argentina\’s exit in 2002 from its dollar exchange-rate peg (embodied in its currency board) to a floating regime that depreciated the peso by 300% in the first three months.

I don\’t think you can, can you? Depreciate by 300%?

I think I know what they mean, the peso went from 1 to the dollar to 3 to the dollar (or maybe 4) but that would be a 66% devaluation (or 75%) rather that 300% wouldn\’t it?

The rest of the piece is what Argentina tells us about how tough it would be for a country to leave the euro.

Which indeed is true, it would be very tough and not a happy time for anyone.

But that isn\’t actually the question that needs to be asked. The one that does is whether leaving would be a more painful experience than staying in…..and in the absence of either full fiscal union or selective debt defaults there are plenty who would argue that staying in will be the more painful option.

3 thoughts on “Can you do that?”

  1. Apart from your general point, percentages are a pretty silly way to measure changes that are large. 10%, 20%, fine: but you see newspapers wittering about 900% changes when a tenfold increase is (probably) meant.

  2. Oddly shouldn’t pro currency union advocates argue that there would be very little depreciation. If the member’s economy was compatible with the union’s it should not require such a large adjustment. Conversely a large currency adjustment upon exit suggest that the union currency was far from optimal for the exiting member.

  3. The Argentine is in no position to give economic advice to anyone. Argentine defaults occur regularly, like El Niño – and we’re overdue for one of each by now.

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