Historical Sketch

Christopher Columbus discovered the island for the Europeans on his first voyage in 1492 and named it Hispaniola (Little Spain). The new possession was subordinated to New Spain (Mexico), and Spanish settlement began immediately. In the 17th century, French settlement began on Tortuga (La Tortue) island offshore to the west and soon extended to the western part of the main island. In 1697, Hispaniola was partitioned between France and Spain, which called their possessions Saint-Domingue and Santo Domingo. After the outbreak of the Haitian revolution in 1791, France occupied the eastern part of Hispaniola, and Spanish rule was restored only in 1809. A decade later, Spain abandoned its colony, and in 1822 both parts of the island were united under French-speaking Haitian rule. Two decades later, in 1844, the Spanish-speaking eastern part broke away again and became the independent Dominican Republic. To deter the constant Haitian threat of re-annexation, the Dominican Republic joined into a five years' union with the Spanish colony of Cuba in 1861, a de facto a voluntary return to colonial status. Political instability continued until the 20th century leading to interventions by the United States, and even the establishment of an eight years' US protectorate in 1916.

Monetary History Overview

After the 1844 secession of the Dominican Republic from Haiti, the provisional government immediately demonetized the Haitian paper money to stop the further inflow. As no national currency existed, the state handed out debt certificates for the confiscated Haitian notes. The papers were not backed by any assets, and already in 1847, they were devalued to 20% of face value and recalled. New debentures were issued that could nominally be exchanged into silver specie. A subsidiary coin was procured in the United States to alleviate the lack of small change medium. A currency law was passed in 1848 introducing the 1st Dominican Peso in a bimetallic standard. However, the government did not have funds to issue any coins, let alone specie. In 1858, bimetallism got abandoned, and the Peso became equal to the Mexican silver Peso circulating in the country. During the time, new paper money replaced the debentures in increasing amounts. It was nominally convertible into silver specie but, however, never got redeemed. US American silver coins were imported and circulated alongside local subsidiary coins, which were produced intermittently and in low numbers. Various foreign gold and silver coins flew into the country and were accepted in daily payments, especially the Mexican silver Peso. The Dominican paper money steadily lost value against silver, in the 1860's around 250 paper Pesos were exchanged against a silver coin. In 1889, the Dominican Republic tried to remedy the monetary disarray. Since at that time, the country tried to emancipate from US domination by approaching France, a French bank was given the central bank concession, and the Dominican Franc was created as national currency in the bimetallic standard of the French Franc. As before, the state did not have funds to issue specie coins, nor to withdraw any money in circulation. The new currency never asserted itself, and in 1894 it was replaced by the 2nd Dominican Peso on par with the US Dollar in gold. The political dominance of the United States had returned, and the central bank concession now went to a US-American bank. The 1894 gold standard was not implemented, no gold coins had ever been produced nor imported, the Franc coins continued to circulate. In 1897, the gold standard was abandoned. New subsidiary coins in the Peso currency were issued, and foreign gold coins were officially rated for use in the country, so that the Peso de facto became equal to half a US dollar. The dominant medium in exchange remained paper money. In 1900 finally, the Dominican currency was abolished, and the United States Dollar got officially introduced (although the respective act referred to it as national currency called "Peso"). Neither the circulating paper money nor the subsidiary coins issued under the 1889 and 1894 currency laws were ever recalled. For almost 40 years, the Dominican Republic did not have a national currency, until political changes in the 1930s led to its re-introduction. The 1937 currency law created the 3rd Dominican Peso on par with the US Dollar. Initially, only subsidiary coins in silver and base metals were issued to replace the US American ones, but paper money remained exclusively foreign for another decade. In 1947, the Dominican Central Bank began operations and issued national paper money. The US American banknotes were demonetized in February 1948. The Peso remained on par with the US Dollar until 1985, when it got devalued by 70% and floated. Until the end of the decade, more than 90% of the value was lost. After a decade of relative stability, the Peso lost another 50% in 2003 alone and went into a slower but steady decline in value afterwards.

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