Historical Sketch

The north-west of Latin America had come under Spanish rule in the mid-16th century, the different settlements were called the "new Kingdom of Granada" within the Viceroyalty of Peru. In 1717, a separate Viceroyalty of New Granada was created with the three provinces of Caracas, Cundinamarca, and Quito. During the French occupation of Spain, like in many Latin American possessions, a part of the Viceroyalty declared independence as the United Provinces of New Granada in 1810. The war of liberation succeeded in 1819 when the Republic of Colombia was proclaimed (later referred to as "Greater" Colombia to make the difference to the 1863 republic). Within a decade, the new state broke up, and the three former provinces declared independence as Venezuela (Caracas), New Granada (Cundinamarca), and Ecuador (Quito). In 1863, New Granada changed name to become Colombia.

Monetary History Overview

The Spanish colonial monetary system continued to be in use after the declaration of independence in 1810, as confirmed by the constituent congress in 1821. The congress resolved to also use platinum for striking coins as the indigenous population had a tradition in handling the metal, but nothing finally came out of it. the Like everywhere in 19th century Latin America, the daily transactions were dominated by low quality and debased coins, called "Macuquina". During the war of liberation, the secessionist government of Cundinamarca had issued a series of debased silver coins to overcome coinage shortage, and the practice continued throughout the 19th century. In 1826, "Greater" Colombia passed a coinage law defining the 1st Colombian Peso in the Spanish colonial bimetallic standard. After the disintegration of Greater Colombia, the successor states continued to use the same standard in their respective coinage act, so did New Granada passed in 1836. The Granadine and Colombian governments tried to sanitize the monetary situation in the following decades. Between 1846 and 1857, the Peso was redefined four times until it corresponded to the French bimetallic standard, for a short time it was called "Granadino". The withdrawal of the Macuquina and the ban of the import of debased silver was attempted several times until it was finally achieved in mid-1864. In 1867, Colombia switched to the silver standard with gold coins being traded at bullion. Five years later, the operation was reverted, and the Peso became a gold currency. Paper money issuance was mainly private, and Free Banking was only lightly regulated in the banking law of 1865. Intermittently, the government issued treasury notes, and in 1881 the state-owned National Bank opened for business. Its notes became sole legal tender when the government lifted convertibility in 1886. The over-issuance of paper by the government, as well as the commercial banks, sent the Peso into inflation. The National Bank became defunct in 1894, its notes remained in circulation, and the government continued issuance in the bank's name. After the turn of the century, the remediation of the monetary situation was initiated. The currency law of 1905 returned to the gold standard by introducing the 2nd Colombian (Gold) Peso as the new currency unit with two zeros cut. The old state paper money continued to circulate alongside. The currency law had foreseen the creation of an auxiliary institute for the conversion, called Central Bank, but it was dissolved in 1909 and replaced by a government conversion board. The conversion was finally carried out until end-1919. In 1923, the Bank of Colombia started operations as central bank with a monopoly for paper money. The gold standard remained nominally in place although convertibility was de fact suspended after the mid-1920s and inflation soared in the country. In 1938, the situation could be sanitized and the currency went back to gold after a cut of about two thirds. After the Second World War, the Peso, but already in 1948, the official rate became basically inoperative while transactions were carried out in a multi-tier exchange rate system. In 1957, the official rate was abandoned altogether, and the Peso was floated. Depreciation continued at moderate rates until the mid-1980s when inflation accelerated. The exchange rate system was unified in June 1991, which did not stabilize the currency. Only in the early 2000s, the Peso got stabilized for about a decade. Between 2014 and 2022, the currency lost about 80% of value against the US Dollar, and has somewhat recovered since then.

Colombia joined the International Monetary Fund (IMF) on 27.12.1945 as a founding member.

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