01 The Hour
Tuesday
12 March 2002. Buenos Aires. Reconstructed to the day.
The decree issued that day carried a count from the central bank, taken as at 19 February.
Had the reprogramming of deposits not been in force, the total owed to depositors on immediate demand came to 65,984 million pesos. The funds available to meet it came to 11,739 million.
The decree set out its own aim in the same register: that in grave economic circumstances the restrictions placed on depositors should be reasonable and limited in time. What it offered was an exchange. Deposits for bonds.
02 The Sequence
3 February 2002 Decree 214 converted deposits held in foreign currency into pesos. The parity applied was 1.40 pesos to the dollar.
19 February 2002 The count later recited in the decree: 65,984 million pesos of obligations to depositors that would have been immediately demandable without the reprogramming, against 11,739 million pesos of available funds.
12 March 2002 Decree 494 opened the swap. Holders of reprogrammed deposits originally made in foreign currency could take dollar bonds at Libor plus 1 per cent maturing in 2012, for the nominal amount of the deposit before its conversion to pesos with interest added, up to 30,000 dollars per holder per institution. Holders of peso deposits could take peso bonds at 3 per cent maturing in 2007, with no limit on the amount. The option ran to 15 April.
16 April 2002 Decree 620 set new conditions for the same option, after the economy ministry had already extended the time depositors had to exercise it.
31 May 2002 Decree 905 repealed both earlier decrees and replaced the scheme. Its recitals record that the worsening of the financial system's position had been contributed to by the execution of court orders granting depositors immediate relief, made by judges across every territorial jurisdiction, with the consequent removal of liquid assets, and that the reprogramming and the optional swap had proved insufficient.
27 June 2002 The central bank told the banks what to tell their customers. A depositor who did not take bonds could do three things with a reprogrammed deposit: sell it in the market, keep it until its final cancellation, or use it to subscribe new issues of shares and negotiable obligations. Deposits not swapped for bonds were to be turned into certificates once the deadline passed.
End of 2002 Certificates were quoted on the boards in two families: those for deposits originally made in pesos, under two letters, and those made in dollars and later converted, under four. Reprogrammed deposits stood at close to 20 per cent of all placements in the system.
August 2005 The banks paid the last instalment, 526 million pesos, to the holders who had never accepted the swap. Each received 242.55 pesos for every 100 dollars originally deposited, being the parity of 1.40 plus the reference stabilisation index. The freeze that began in December 2001 had immobilised deposits reported at 55,000 million pesos.
03 The Hidden Dependency
The rule that mattered most to the arithmetic is not in the operative part of any of these decrees. It is in the recitals of the last one.
Decree 905 records that the position had worsened, and that one of the things that contributed was the execution of precautionary court orders which gave a depositor what he was asking for at once, issued by judges in every territorial jurisdiction, with the consequent removal of liquid assets from the banks.
The general rule held while individual claims were being met in full. The liquidity that met them came out of the same eleven thousand million that the rule existed to ration.
The general rule held while individual claims were being met in full.
04 What Still Worked
The Bond Option
Two instruments were on offer against a reprogrammed deposit: a dollar bond maturing in 2012, capped at 30,000 dollars per holder per institution, and a peso bond maturing in 2007 with no cap.
The Market In The Certificate
A holder who took no bond could sell the certificate in the market rather than wait, or use it to subscribe new issues of shares and negotiable obligations. Reporting on the closing of the scheme records that holders who wanted out of them mostly used them to cancel loans with the banks instead, and that trading had stopped well before the end.
The Final Cancellation
The third choice was to hold the certificate to the end. That route paid out in instalments and closed in August 2005, at 242.55 pesos for each 100 dollars originally deposited.
05 The Plumbing
The Plumbing 27 June 2002
Central bank Communication A 3647, issued to the financial institutions, sets out the mechanics of the regime for reprogramming deposits.
A holder of a reprogrammed deposit chose bonds or did not. Once the deadline passed, every deposit not exchanged was to be converted into a certificate, and the certificate could be sold, held to final cancellation, or used to subscribe new share and debt issues. Holders of sight deposits had a separate menu, with dollar bonds valued at the same 1.40 parity.
06 The Pattern Library
1 When one retail withdrawal channel closes or fails, demand concentrates on whichever channel is left open, and the capacity of that channel sets what a depositor can obtain.
Observed: Northern Rock 2007, Cyprus 2013, India 2016, Greece 2015, United States 1933, Argentina 2001, Lebanon 2019, Worldpay 2026, TSB 2018.
2 A currency replacement can require physical modification of each cash dispensing machine before the new notes can be issued, so the machine estate returns to service site by site rather than at once.
Observed: India 2016.
3 Withdrawal limits imposed on a domestic banking system can be written to exempt cards issued outside it, so one machine dispenses under two rules according to where the card was issued.
Observed: Greece 2015.
4 Domestic payment and deposit channels can continue operating while cross-border payment routes fail, with the central bank standing in as the intermediary for payments to and from the country.
Observed: Iceland 2008, Germany 1931.
5 When the institutions that convert payment instruments into cash are closed, wages and checks already received cannot be spent, and merchants and carriers extend their own credit in place of the missing conversion.
Observed: United States 1933.
6 A public employer short of the national currency can pay wages in an instrument it issues itself, which then circulates alongside the currency it stands in for.
Observed: Argentina 2001.
7 Withdrawal restrictions can be imposed by individual institutions and their trade association rather than by statute, so the limit differs from bank to bank and no law governs it.
Observed: Lebanon 2019.
8 A cash withdrawal ceiling set in nominal units has to be raised alongside the note denominations that pay it, because the ceiling can only be dispensed in the notes that exist.
Observed: Zimbabwe 2008.
9 A payment outage can hit card authorisation and merchant funding as separate faults, so acceptance at the terminal is restored while the money owed to the merchant arrives a day late under its own incident notice.
Observed: Worldpay 2026.
10 A retailer that loses electricity can go on trading by taking cash and rationing goods by hand, so the counter outlasts the checkout system that normally prices and settles the basket.
Observed: Texas 2021.
11 A systems migration can leave account records readable but wrong, including presenting one customer's account to another, so a working login is no guarantee that the balance on the screen belongs to the person reading it.
Observed: TSB 2018.
12 The size of a card processing failure can be counted twice, once on first attempts and once after the same card was presented again, and the second count can be about half the first, so part of the recovery runs through the cardholder at the till.
Observed: Visa Europe 2018.
13 A closure can be followed by a reopening in which the restriction is written by purpose rather than by amount, so the counter pays out for wages, taxes and relief while other business stays shut, and the test applied is what the money is for.
Observed: Germany 1931.
14 A deposit freeze can be paired with a transferable certificate issued against the frozen balance, so the deposit becomes a claim that can be sold before it is released, at a price the market sets rather than its face value.
Observed: Ecuador 1999, Argentina 2002.
15 A per head issue of a new currency can be distributed through the administration that issues food rations rather than through the banks, so the ration card is the proof of entitlement and the banks are used to collect the old money rather than to pay out the new.
Observed: Germany 1948.
Changed today: Entry 14 was refined and gained Argentina 2002. It had tied the discount to the market's view of the institution that issued the certificate, which the 1999 case supports and this one does not: the Argentine certificates were quoted by class according to the currency the deposit had been made in. The entry now says the price is the one the market sets rather than face value, which both cases carry.