If the underlying demand for one of two competing vehicle currencies falters for a reason not clearly perceived to be transitory, and its bid-ask spreads, accordingly, increase relative to its competition, demand will shift to that competitor. But that shift, in turn, will widen the bid-ask spread of the faltering competitor still more, inducing a further shift of transactions to the alternative currency.
Argentina: hands-off approach coupled with official sector weakness Let me turn to Argentina. Here, the lessons are at the international macro-economic level. Not too long ago, Argentina was the focus of attention, though for very different reasons than now. In the early 1990s, “neo-liberal” economic reforms were implemented; hyperinflation was brought to a halt; the economy was progressively deregulated and privatised.