Set Narrow
Can someone translate this into layman terms?
It established fixed peso-dollar parity and
validated contracts in foreign currencies. It also stipulated that the central bank must back 100
percent of its monetary base with foreign reserves. By September 1992, the new Central Bank Law
set narrow margins to the possibilities of purchasing public bonds and lending to the commercial
banks. The new law also established the autonomy of the central bank.
(it is about the Argentina monetary policy, but i am not very familiar with monetary policies in general and it is a question on my paper, however i am having a hard time understanding what this means at all..)
I’ll try…
1) It set the Peso-Dollar parity to a fixed rate. The parity is the exchange rate (how many dollars you get for X number of Peso’s) which takes into account the different interest rates in different countries. The parity rate makes it so if you were to invest in a foreign country, if you were to go exchange those “earnings” for your home currency, you should end up with an amount equal to what you would have received if you made a similar (risky) investment in your home country.
2) Central bank must back the full amount of every investment with foreign bonds, deposits, etc.
3) The law allowed the central bank to govern/run itself
(I think the rest is kind of understandable)
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