For much of the post-World War II era, when the financial press focused on Argentina,
it was to highlight bouts of very high inflation and failed stabilization efforts.
Hyperinflation was rampant in the 1970s and 1980s, and prices increased by more
than 1,000 percent in both 1989 and 1990.
In 1991, to tame its tendency to finance public spending by printing pesos,
Argentina introduced convertibility of its peso into dollars at a fixed one-to-one
exchange rate. To control the issuance of money, the Argentines abandoned their
central bank-based monetary regime, which they felt lacked credibility, and established
a currency board. Under this arrangement, currency could be issued only if
the currency board had an equivalent amount of dollars.
The fixed exchange rate and the currency board were designed to ensure that
Argentina would have a low inflation rate, one similar to that in the United States.
At first, this program appeared to work: By 1995, prices were rising at less than two
percent per year.