A recent article in the NYTimes raises some interesting issues in monetary economics. (Might be fun for class discussion.) The article has been emailed to this list under separate title. -- Provincial governments in Argentina are short of pesos so they are paying their workers in patacones which are bonds that pay-off in dollars in one year at a 7% interest rate. (It's somewhat unclear whether there is a general shortage of cash, because of the withdrawal of U.S. investment funds and sticky prices (?), or whether the issue is that due to a recession the local governments simply have less revenues than expenditures.) The governments tried to borrow in pesos internationally but failed. Presumably they can't borrow nationally either. Can the bond scheme possibly work in this situation? It seems highly unlikely because someone who accepts patacones is really lending the government money but we already noted that international and national financial markets are not willing to lend the government money. At best, it seems that the patacones are really a way of approaching a particular set of lenders, those who most need the government but who may not be liquid. That is, the workers who can't find other jobs may accept the new currency and the stores that rely on the worker's businesses may accept it because they too have few other choices in the short run. But if the financial markets are correct it seems that sooner or later the bonds will be repudiated (paid off at less than par). Thus the scheme is really a way of taxing those who have the fewest alternatives to government employment/expenditure. Comments? Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]