Historical Sketch

During the Spanish colonial period, entire Central America was part of the Kingdom and General Captaincy of Guatemala, which itself was subordinate to the Viceroyalty of New Spain (Mexico). In the 1820s, it was briefly annexed to independent Mexico but became the Central American Republic in 1823. The confederacy consisted of five free states which enjoyed large autonomy. This led to its quick disintegration already in the late 1830s. The Free State of Honduras was formed from the Comayagua and Tegucigalpa provinces of the Guatemalan general captaincy. In 1838, it left the confederacy, and the republic was proclaimed in 1854. The first century of statehood was marked by political instability. The United States intervened several times, and during 1909-1933, Honduras was even under U.S. protectorate.

Monetary History Overview

Honduras left the Central American Republic in 1838. The monetary system simply went on after that, no currency law was enacted in Honduras for the next three decades. Already during the time of the federation, the Honduran monetary situation had been in disarray. In the late 1820s, debased coins of the so-called "moneda provisional" appeared. Originally intended to finance troops in the ongoing civil war, they soon became a welcome means of financing the government expenditure. The Central American Federation had banned their issue and ordered Honduras to recall them, but in vain. After the end of the federation, the "moneda provisional" proliferated. The debasing became worse until an 1856 currency law even officially transformed them into pure copper coins. In 1869, the Honduran government enacted the first currency law with the Honduran Peso at par with the US Dollar in gold. The monetary confusion was, however, not yet over. The government had commissioned a French bank with the minting of subsidiary coins in non-decimal denominations, although the Peso was a decimal currency by law. They were put into circulation in 1870 but had to be recalled shortly afterwards as the population did not accept them for being in copper nickel. Hence the withdrawal of the "moneda provisional" had to be postponed, already collected coins were even reissued to overcome the small change shortage. In 1871, new equipment for the mint had been purchased, but the political and economic situation prevented its installation for several years. In 1879 finally, the production of the first Honduran coins could begin but the dies were found defective such that just a few pieces in one denomination could be issued. New dies had to be ordered such that the production began for real in the early 1880s. Since the 1879 dies were erroneously made for silver coins in the French standard the currency law was adapted accordingly. But now the gold coinage was omitted in the law, and it was only specified to be in French standard, as well, in a mint circular of 1888. Over the years, the number of coins issued remained small. The 1870 currency law had admitted US coins as legal tender, and coins of various neighbouring countries also flowed in. In 1889, a private commercial bank started issuing paper money, two more followed in the early 1910s. To overcome the monetary anarchy, the US currency was declared legal tender by presidential decree of August 1918, and the Peso got pegged to the US Dollar. The currency law was adapted in the following year and another update in April 1926 changed the currency name into Honduran Lempira. The implementation of the reform got delayed until March 1931 since the government had to first secure the financing of the currency exchange. In mid-1933, the government had finally managed to withdraw all the outdated money and drive out foreign currency, except for the US Dollar which remained legal tender. In July 1950, the Central Bank of Honduras began operations, and the private paper money issuance was abandoned. Beginning of 1954, also the US currency lost legal tender status, so that for the first time in its history, the circulating medium in Honduras was purely national. The Dollar peg of the Lempira remained unaltered until March 1990. Then the Honduran currency was devalued by 50%, and the exchange rate got floated. The currency lost about 75% of its value until the mid-1990s and has settled into a steady decline since then.

Honduras joined the International Monetary Fund (IMF) on 28.12.1945 as a founding member.

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