Op Ed: How Fiat Could Fall and Bitcoin Could Soar

Argentina’s Failed PegIn the 1990s, the Argentine peso was pegged to the U.S. dollar. This meant that the Argentine government guaranteed that anyone could exchange one Argentine peso for one U.S. dollar. If you had 1,000 Argentine pesos in your bank account, you could walk into the bank and ask for US$1,000 and the teller would hand it over.By 2001, the peg had become unsustainable and the government of Argentina abandoned it. As a result, the exchange rate went into freefall.Imagine if you looked at your bank account and the value of your assets had gone down by 75 percent over the course of a year without you spending a dime. That’s effectively what happened to the citizens of Argentina in 2001.In less than a year, the exchange rate went from 1:1 to 4:1. If you had $10,000 worth of pesos in your bank account in 2001, a year later you would have had only $2,500.Attempts to withdraw U.S. dollars as the exchange rate plummeted were thwarted for most citizens because the run on the bank meant there were no U.S. dollars left to hand out.I spent a year living with a retired woman in Córdoba in the 2000s who recounted to me the feeling of watching her retirement savings slashed by 75 percent as she slept on the street outside the bank, hoping to be able to withdraw it.Though few of us who grew up in the developed world can relate, this story is not unique to Argentina in 2001.The Debut of Paper MoneyAs Jack Weatherford details i...