Letter of support for the new central bank law in Argentina

For the RES Newsletter, July 2012, Online Issue 3

The prevailing ideology over the last thirty years has been that the only legitimate task of central banks everywhere is control of inflation. This has frequently been through the application of an ‘inflation target’, a maximum rate of increase of some measure of aggregate price changes. The practical consequence of setting the ‘fight against inflation’ as the primary objective has been to reduce substantially the policy options of central banks. Even more, this narrow approach prevents the coordination of monetary policy and fiscal policy, essential to successful countercyclical interventions.

In Argentina in the 1990s economic policy operated under the burden of an extreme form of this narrow approach, a ‘currency board’ regime, involving a fixed exchange rate to the dollar and a monetary base strictly linked to foreign exchange reserves. During 1997-2002 the weaknesses inherent in this monetary policy created disaster, economic collapse and high inflation.

In March of this year, the Argentine government proposed a new central bank mandate, that would repeal the currency board rules and broaden the institution’s mandate to multiple objectives including growth, more equitable distribution, sectoral credit allocation, and price stability. The Congress passed and President Cristina Fernandez signed it into law the new mandate.

We, economists working in the United Kingdom, applaud the Argentine government and the Congress for this farsighted approach to monetary policy. The new mandate allows the current and future governments to choose between wise and foolish economic policies, while the previous law institutionalized the latter.

Signed:

George Irvin
Costas Lapavitsas
Terry McKinley
Jan Toporowski
John Weeks
SOAS, University of London

Anne Pettifor
Prime Economics

G C Harcourt
Ha-Joon Chang
Gabriel Palma
University of Cambridge

Malcolm Sawyer
Gary Dymski
Anna Kaltenbrunner
University of Leeds

Guy Standing
University of Bath

Engelbert Stockhammer
University of Kingston

Ozlem Onaran
University of Westminster

John Grahl
University of Middlesex

Sarah Bracking
University of Manchester

Kalim Siddiqui
University of Huddersfield

Hulya Dagdeviren
University of Hertfordshire

Michael Burke
Socialist Economic Bulletin

From issue no. 158, July 2012, p.5

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