3. In 2011, the government of Argentina developed a new policy (sometimes called the “dollar clamp”) to prevent Argentines from exchanging pesos, the local currency, for U.S. dollars. New restrictions hampered currency exchange: for example, buying dollars required advance approval from the national tax authority.

a. Consider that Argentina has had a tumultuous economic history, with periods of high inflation and economic volatility. In particular, right before the restrictions were put in place, foreign investors (who were holding Argentinian assets) were starting to get skittish. Given this environment, why might the government put these exchange restrictions in place?

b. Even with the restrictions in place, dollars were still available in the flourishing underground market

(if you’re interested, the Twitter feed @dolarblue posts the daily underground market exchange rate in Argentina). In these circumstances, would you expect the underground market exchange rate (pesos per dollar) to be higher or lower than the official exchange rate? Explain.

c. At the end of 2015, the new president of Argentina, Mauricio Macri, eliminated the restrictions. Examine a chart of the pesos-per-dollar exchange rate at https://

fred.stlouisfed.org/series/ARGCCUSMA02STM.

What happened to the official exchange rate when Macri enacted his policy of unrestricted foreign exchange transactions? Explain.