Hyperinflation & The $1,000,000 Peso Bill

Wish you had million pesos? You can, and it’ll cost you only a few bucks!

Just head to Viamonte 981, en el microcentro, and you’ll find a coin and stamp collectors shop, where you can become a millionaire in a few minutes.

Argentina’s historic experience with hyperinflation is well known and has been studied by economists around the world.

In July 1988, inflation, as measured by the consumer price index, peaked at 196.5% on a monthly basis, making today’s annoying 1% monthly inflation seem soft and cuddly by comparison.

But most people visiting the country today (and even some younger Argentines) have never seen the devalued bills that circulated back in those days.

The first photo is of a one million-peso bill issued sometime between 1981 and 1983. The second a is bill worth 500,000 “Australes,” a currency created by Raúl Alfonsín’s government in one of his multiple bids to stop inflation.

The second bill was issued sometime between 1990 and 1991, before President Carlos Menem and Economy Minister Domingo Cavallo introduced the famed “convertibility” plan that tied the peso one-to-one with the U.S. dollar and in one fell swoop, finally, nipped inflation in the bud.

At first, Alfonsín’s “Plan Austral” worked. But its success was doomed to be short-lived, just like other plans that followed it. After the plan showed signs of failure, the government tried another approach, launching what became known as the “Little Austral Plan,” or “Australito.” But that was too little, too late.

The associated economic problems – growing debt and inflation, among them – helped Menem win the 1989 presidential election. The government dubbed Menem the “chaos” candidate. Before Cavallo and convertibility came along, Menem had his own problems with inflation.

Though convertibility arguably led to later problems, it helped Argentina remain inflation free until the presidency of Néstor Kirchner.

Kirchner’s plan for tackling inflation lacked a catchy name like the Plan Austral. But when he launched it in late 2007, the plan worked immediately, curtailing inflation overnight, at least according to the national statistics agency, Indec.

Only trouble is that Indec’s data didn’t actually measure inflation, economists say, meaning that the government hadn’t actually stopped inflation. It just stopped calculating it.

Virtually nobody here or abroad believed in Indec’s data, creating a credibility problem for the government of Kirchner’s wife and successor, Cristina Fernández. That, presumably, is why Economy Minister Amado (literally, “the loved one”) Boudou announced last month – with great fanfare – that the government will review the way Indec calculates its data.

And that gets us where we are today. Twenty eight years after the million peso bill was first issued, inflation, which is basically a tax on the poor and middle class, is no longer the nightmare it once was. But it’s still a a topic of conversation and a challenge for both the government and its constituents.

Popularity: 1% [?]