Currencies were sharply devalued as current accounts were forced to adjust, rising fiscal deficits were again financed by money creation, and inflation soon rose to new heights. Several "heterodox" stabilization plans initiated in the mid-1980s, such as Argentina's Austral Plan and Brazil's Cruzado Plan, attempted to stabilize the currency and rein in inflation by using a fixed exchange rate as a nominal anchor.
As a fixed exchange rate (if successfully maintained) ties down  4  Fischer, Sahay, and Vegh (2002) present evidence of a strong correlation between fiscal deficits and money creation in high-inflation economies. They also show that high inflations are correlated with poor macroeconomic performance.