The paper presents the experience of Argentina in operating the currency board system, which was introduced there in 1991. In many respects, the country benefited from the arrangement; above all, the high inflation ravaging the economy for many decades had been eliminated. However, the paper points to the threats involved in a complete renouncement of an independent monetary policy in the case of a country like Argentina, medium-sized and not fully integrated with the world markets.

The author presents the principles for currency board operation and the rationale behind its introduction in Argentina. Next, the system's sensitivity to external shocks is analysed. The analysis is supported with evidence from the 1995 currency crisis (following the Mexican crisis) as well as the recession observed in the past two years, triggered off by the devaluation of the Brazilian real. The concluding part deals with key dilemmas of economic policy of a country which has opted for a 19th century exchange rate mechanism in a world which is still much less economically integrated than was the case in the times of the gold-backed currencies.