The exchange rate system is at the heart of a debate over how to revive an economy that has been mired in recession for three years. Some economists say fixed peso-dollar parity locks in high prices and wages and makes exports noncompetitive. Others say scrapping it would ignite inflation and make the national debt, most of it owed in dollars and other foreign currency, ruinously difficult to repay. Mr. Cavallo proposed shifting away from a dollar-only peg while he was in opposition. But when he was appointed to the cabinet three weeks ago and given extraordinary powers to attack economic problems, he was at pains to say there was no question of abandoning the peg.
Some investors worry that the dollar-euro peg plan is a devaluation in disguise.
At present exchange rates, linking the peso in equal parts to the two currencies would reduce its value 5.8 percent, to 94.2 American cents. But Mr. Cavallo has said in recent speeches that the peso would not be shifted to a new formula if doing so would devalue it and that the euro would first have to gain value. Mr. Cavallo's push for a mixed dollar-euro peg may be meant to head off a campaign led by a former president, Carlos Sa l Menem, in whose cabinet Mr. Cavallo served a decade ago, to scrap the peso entirely and adopt the dollar instead, eliminating all risk of devaluation. As preliminary steps, Mr. Cavallo's plan calls for allowing Argentines to open euro-denominated bank accounts and carry out financial transactions in euros.