Question

in 1991, argentina established a radical institutional reform after experiencing a decade marked by financial instability. this program was called the new convertibility law. what did this law do? a. made argentina's currency fully convertible into eurocurrency at a fixed rate b. required that the monetary base be backed completely by u.s. dollars c. placed limits on exports of commodities d. made argentina's currency fully convertible into u.s. dollars at a fixed rate and required that the monetary base be backed completely by gold or foreign currency e. restricted risky international trade activity

Answer 1

The New Convertibility Law in Argentina in 1991 made the nation's currency fully convertible into U.S. dollars at a fixed rate and required the monetary base to be backed by dollars, aiming to stabilize the economy and prevent banking crises related to exchange rate depreciations.

Step-by-step explanation:

In 1991, Argentina introduced the New Convertibility Law, which fundamentally changed the country's monetary policy after a period of financial instability. This law made Argentina's currency fully convertible into U.S. dollars at a fixed rate and required that the Argentine monetary base be backed completely by U.S. dollars. This move was an attempt to stabilize the Argentine currency and prevent situations where banks could not service their U.S. dollar-denominated debts due to exchange rate depreciations.

The New Convertibility Law aligned with the principles of other exchange rate regimes that opt for stability through fixed exchange rates. Nations can choose various exchange rate regimes—from floating rates that the market determines to pegged rates managed by government intervention, to adopting another nation's currency. The choice reflects a trade-off between the benefits of stability in international trade and the constraints on domestic monetary policy.