National Monetary Policy and the Colombian Peso

The Peso (COP) has been Colombia’s official and national currency since the 19th century. Having been pegged throughout the last century to the French Franc, the British Pound, the Gold Standard, and the United States Dollar, today, the Colombian Peso is a free-floating currency in the international foreign exchange (FOREX). Since its creation in 1923, the Bank of the Republic of Colombia has been the entity in charge of minting and emitting the Peso (COP) as well as maintaining its monetary stability. During several decades throughout the first half of the 20th century, the Colombian Peso was pegged to the US Dollar at a ratio of approximately $1,05 COP to $1,00 USD. However, this ratio was broken in 1949 and, since then, inflation in Colombia has driven the Peso (COP) to ever-larger denominations.

National Monetary Policy and the Colombian Peso

Back in September 1997, the Colombian Peso was trading at about $1.200 COP to one US Dollar. By March 2008, the Peso’s value had decreased to about $1.800 COP to one US Dollar and, as of February 2018, the Peso is trading at about $2.800 COP to one US Dollar. This means that, in Colombia, the lowest coin denomination in circulation today is the $50 COP coin and that all monetary amounts are rounded to units of 50. Meanwhile, the largest paper bill denominations are $20.000 COP, $50.000 COP, and $100.000 COP. Nevertheless, for tourists, international investors, and businesses in Colombia, the high denomination of the Peso (COP) makes for high price amounts, which are unusual and complicate calculations. For instance, today, $400 US Dollars equate to $1.14 million Colombian Pesos (COP).

Therefore, throughout the last several years, the Colombian executive and President Juan Manuel Santos himself have been pushing for the elimination of the last three zeros from national currency and the introduction of a decimal points system. This would mean that $1.000 COP would become $1 COP, that $50.000 COP would become $50 COP, and that $500 COP would become $0,5 COP cents. Similarly, under this new denomination, $400 US Dollars would equate to some $1.140 COP. If the Colombia’s next legislature were to approve such a change in monetary denominations, the ensuing currency would be temporarily referred to as the ‘New Peso’ as the transition towards the new bills is completed. Furthermore, this transition would be basically seamless, without disrupting financial or economic activity, because the two currencies would circulate simultaneously and have equivalent values as explained above.

The national government in Colombia has already started to lay the groundwork for this monetary transition in the design of a new series of bills, even though the project has not been formally approved by the Colombian legislature and is being debated publicly. Another option for Colombia as it seeks to mainstream and simplify its monetary policy would be to transition towards a dollarized economy, adopting the US Dollar, as neighboring Ecuador, Panama, and El Salvador have already done.

(Read more about Economic Outlook for Latin America in 2018)