Speaker unverified: belief

Transcript context

…In some recent times, it’s been quite expensive to fly down to Buenos Aires and buy a good steak because the real exchange rate was kept high. Now that may be a signal of credibility, but many economists criticize that decision that simply trying to peg exchange rates high has a pretty bad record historically. Was that the correct decision, and has reality vindicated it? That semi-peg hasn’t really been broken. Bessent backed it. At the time I thought that was a big American mistake. That too seems to have worked out okay. What’s your view on all of that? I do believe the Argentinian peso needs to adjust more and needs to be allowed to depreciate more than it is doing right now. They have a framework where they moved from what looked like an exchange rate peg in previous regimes to a crawling exchange rate to now a crawling band. That band has gotten pretty wide. In a sense, their framework should allow for more movement in the exchange rate. I think they’re being far too hesitant in buying dollars to build up their foreign exchange reserves than they should. I think that’s something that they could do much faster because if they did that, yes, they would get some more depreciation, but it would be still well within the crawling band. Short answer, I do think that they need to let the nominal exchange rate move more. That, combined with fiscal policy and monetary policy that doesn’t have that depreciation feed directly into prices, that combination will generate some real exchange rate depreciation. I think that is valuable for them to do. Now, the thinking behind why do you not want to leave the exchange rate to depreciate more, you can make an economic case for that when you say you worry about deanchored inflation expectations. This is not the world where our models work. It’s a world where when people wake up in the morning, see the newspaper, see that the peso is depreciated, immediately they want post higher prices, which are even higher than what the depreciation is, because they think that this is going to feed into all the prices that they have to deal with too. When you have deanchored inflation expectations, there is this argument about, “Okay, we don’t want the nominal exchange rate to move around too much.” I think, over the past couple of years, thanks to the other policies, inflation expectations have come down, and that should give them some more confidence in letting the exchange rate move around. If further depreciation is required and indeed good, why isn’t the crawling peg just broken now? It’s not that thick a liquid market, right?…

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