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 Nicaragua was created from the original province of León, which got divided into Nicaragua and Costa Rica in 1812. Nicaragua proclaimed independence from the Central American Republic in 1838 and became a republic sixteen years later. The Pacific coastal region was under British rule as “Mosquito Coast Protectorate” until it got handed over in 1860. During the late 19th and early 20th century, the country has seen several US interventions, culminating in the more than 20 years of occupation starting in 1909. The Sandinista Revolution and subsequent establishment of a socialist government in 1979 led to more than a decade of civil warfare and foreign intervention.

Monetary History Overview

Nicaragua left the Central American Republic in 1838. The monetary system simply went on after that, no currency law was enacted in Nicaragua for the next three decades. Foreign coins were circulating, mainly crudely hammered irregularly shaped former Spanish colonial coins, the so-called "Macuquina", and even cocoa beans were admitted as official substitute for small change. The US influence on the Nicaraguan politics had been growing since the 1840s, and in 1859, the US Dollar was declared legal tender, but the number of coins imported was not significant, and they quickly disappeared from circulation. In 1870, the first currency law was finally passed. The Nicaraguan Peso became the national currency and was pegged to the US Dollar. The state did not have the means to produce specie coins, just a few subsidiary coins in silver and copper, such that foreign coinage made up the circulating medium. In the 1880s, two commercial banks began issuing paper money. The issuance was not regulated, the value of the banknotes depreciated against specie. The private note issuance was terminated in 1896, but the depreciated currency dominated the payment transactions for another two decades. In 1909, the United States occupied Nicaragua to stay there until 1933. A US-based commercial bank took over the central bank role in 1912, and the depreciated private paper money got devalued and withdrawn. In March 1913, the currency was reformed, and the 1st Nicaraguan Córdoba became the new unit, a gold currency at par with the US Dollar. In the economic crisis of the 1930s, the parity could no longer be upheld, and the Córdoba was devalued in steps down to 20% of the initial value. Another 28% devaluation was carried out in 1955, then the rate remained stable until the Sandinista revolution of 1979. During the 1980s, the Córdoba's official rate was devalued by 90%, but after 1985 it had become inoperative, and a floating effective rate dominated the transactions. In 1988, the currency was reformed. Three zeros were cut, and the 2nd Nicaraguan (Revalued) Córdoba became the new unit. Exchangeable cash amounts were limited, any excess holdings were declared worthless. The exchange rate was unified at the effective rate, which corresponded to a more than 99% devaluation of the former official rate. The new currency immediately went into hyperinflation, with annual depreciations above 97%. In May 1990, a gradual restructuring of the currency began. The 3rd Nicaraguan (Gold) Córdoba was introduced as parallel currency at par with the US Dollar. The older banknotes circulated alongside the new ones, the ratio between the two was adjusted continuously. The transition period went on for one year. In May 1991, the changeover ratio was frozen, and the old currency got demonetized. As a final step, the Córdoba got devalued by 80% against the US Dollar. In January 1993, the exchange rate got floated, and the central bank adopted an exchange rate policy of constant annual depreciation.

Nicaragua joined the International Monetary Fund (IMF) on 14.03.1946.

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