It won’t be possible Argentine depositors to get their frozen deposits back in U.S. dollars or in pesos worth US$1, according to a special report released today by Moody’s Investors Service titled “Argentina: The Money Problem”.

The agency says that while the causes of Argentina’s economic problems are manifold, the immediate cause of Argentina’s current crisis is a lack of money. “The reason that the government has had to stop paying its bills, to pay workers in scrip, and to raid the banks and pension funds to finance itself is because (as President Duhalde acknowledged) it has run out of money.”

Before the dollar/gold standard was scrapped, governments frequently ran out of money, it says. Today, governments seldom run out of money, because since the fixed exchange rate system was finally scrapped in 1971, their central banks have had the ability to print fiat money without limit.

But Argentina voluntarily swore off its right to print money because it had created hyperinflation by doing it without restraint in the past. “No one trusted the national currency or the banks. The convertibility law promised to exchange monetary stability for hyperinflation,” says Moody’s. “But there are worse things than hyperinflation, as Argentina is now discovering.”

Argentine authorities were forced to resort to a deposit freeze to prevent total financial collapse. But deposits cannot be frozen forever, depositors will ultimately be forced to accept something other than dollars in exchange for their peso and dollar deposits.

This could take the form of a new currency, dollars at a devalued exchange rate, or dollar bonds (as in 1991). “It will be extremely difficult if not impossible for any Argentine president to explain this, and to survive the consequences. But 1 to 1 convertibility will ultimately have to go, because the alternative is total financial collapse,” it says. “Ultimately, redenomination into a devalued fiat currency is the probably most likely monetary scenario for Argentina, despite its political unpopularity.”