Challenging a Money Doctor: Raúl Prebisch vs Sir Otto Niemeyer on the Creation of the Argentine Central Bank

FLORENCIA SEMBER

Research in the History of Economic Thought and Methodology

Emerald Publishing

Lugar: Bradford; Año: 2018 vol. 36 p. 55 - 79

0743-4154

As Undersecretary of Finance, Prebisch participated in1931 of a Commission that elaborated a project for a Central Bank. This projectwas not applied, but contained several elements that would be taken up again byPrebisch in 1935, when the creation of the BCRA effectively took place. Betweenthese two projects, the British expert Sir Otto Niemeyer was invited toArgentina to advise on banking and currency reform. The final project writtenby Prebisch and approved by the Congress in 1935, had the same formal structureof the Niemeyer project. However, fundamental changes were made to it, withoutwhich the implementation of the mentioned anti-cyclical policies would haveproved impossible. Prebisch considered that Niemeyer?s project was not fit to the Argentinereality, and, moreover, that it did not take into account the critical situationin which the depression had left Argentine banks. Accordingly, he madeessential changes to it. In doing this, he took into account the specificitiesof the Argentine economy, and in particular what he called ?the Argentineeconomic cycle?, which he had theorised in the early twenties. To soften thecycle ?provoked by external vulnerability ?the BCRA was provided with severalinstruments: rediscount, open market operations and exchange control. Moreover,to deal with the illiquidity and insolvency of banks, the Institute for theLiquidation of Bank Investments (ILBI) was created. The BCRA and ILBI werecapitalised and financed with the revaluation of the gold reserve of theConversion Office, a policy which was rejected by Niemeyer. The aim of this paper is to show thatPrebisch?s role in the creation of the central bank was more important thannormally acknowledged and that ?far from being minor changes ?the modificationsPrebisch did to Niemeyer?s project stemmed from completely different visions ofthe functioning of the Argentine monetary and banking systems. Theseconclusions are supported by the archival sources of the Bank of England, notused until now to examine Prebisch?s role in the creation of the BCRA.