Although Uruguay is a relatively small country, Uruguay’s currency is one of the most interesting in the world, in no small part due to its volatility. While the modern version of the Uruguayan peso only goes back to 1993, there have been many variations in the last century and a half.
Consequently, Uruguay’s currency is of interest to both traders and collectors. On the other hand, due to the many changes that it has undergone, it can be difficult to grasp the complexities of the Uruguayan peso. And that’s what we’ll try to rectify with this article.
We will talk about the complicated history of the peso, how it is doing currently, explain the interesting relationship the Uruguayan economy has to the dollar, and the attempts of the Uruguayan government to introduce an electronic peso. But before we get to that, let’s cover the basics.
|The official currency of Uruguayan is the Uruguayan peso, adopted in 1993. The ISO 4217 currency code for the peso is UYU and the symbol is $U or just $. It is issued by the Central Bank of Uruguay. One peso can be subdivided into 100 centésimos. Since 2002, the Uruguayan peso has operated under a floating exchange rate system.||
Since the adoption of the peso in 1993, there have been coins of 10, 20, and 50 centésimos and 1, 2, 5, 10, and 50 pesos. The centesimos coins are no longer in use. Regarding banknotes, there have been 5, 10, 20, 50, 100, 200, 500, 1,000, and 2,000 pesos bills. The 5 and 10 pesos banknotes have been replaced by the same denomination coins in 2003.
Uruguayan Coins in Circulation
Uruguayan Banknotes in Circulation
The current-day territory of Uruguay had been contested during the Late Middle Ages and in the early modern period, primarily between Spain and Portugal and later Brazil and Argentina. The currency used in Uruguay depended on the country that held the territory at a given time (i.e., Brazilian currency was used during the time Brazil was dominant, Argentinian when this country was, etc.).
The linking factor was that all the nations used a currency based on the Spanish dollar (as a side note, the US dollar was initially also based on the Spanish dollar). Uruguay became independent in 1828 (it gained independence from Spain in 1811 but was annexed by Brazil until 1825, when it entered a federation with Argentina until the federation was dissolved in 1828), but did not have monetary stability until 1896.
Consequently, there were many different types of coins, including copper, silver, and gold ones, and paper money used during this time period. Even postage stamps were used as currency at some points. Finally, in 1896, the government of Uruguay founded the El Banco de la Republica Oriental del Uruguay, the national bank of Uruguay which had a monopoly on issuing the nation’s currency.
This currency issued by the national bank was called the peso and was based on the gold standard. The gold standard was abandoned in 1914 due to WWI and partially re-established in 1925. However, Uruguayan currency was highly unstable during this time, particularly following WWII, and culminated in runaway inflation in the 1960s and 1970s.
The old El Banco de la Republica Oriental del Uruguay was replaced by a new central bank, the Banco Central del Uruguay (the current central bank) in 1967. Following this period of instability, a new currency was introduced in 1975 – the nuevo peso (ISO code UYP). One nuevo peso was equal to 1,000 old pesos when it was introduced.
However, the economic situation did not improve in Uruguay and the issues with inflation continued over the following decades. From 1990 to 1993, high-denomination nuevo peso banknotes entered circulation, with the highest one being worth 500,000 UYP.
Again, in 1993, a new currency was established to replace the nuevo peso, the peso uruguayo – the modern-day Uruguayan currency. When it was introduced, 1 peso uruguayo was equal to 1,000 nuevo pesos (the same ratio as when the nuevo peso replaced the old peso in 1975). The nuevo peso remained legal tender until 2003.
During the 1990s, the Uruguayan peso was a partially floating currency, with top and bottom margins at which point the government would intervene. This system was supposed to provide a form of stability to the currency. However, due to Uruguay’s banking crisis and a large budget deficit, the peso was allowed to freely float against other currencies in 2002. This caused the peso to lose almost half of its value in the following weeks.
To the surprise of many, in 2004, the Uruguayan peso started to appreciate against the US dollar and continued doing so until 2009, reaching as high as 19 UYU : 1 USD. The appreciation did not continue and the peso again experienced a period of inflation, but nowhere near as volatile as during the previous century. In 2020, 1 USD was worth approximately 40 UYU.
While Uruguayan currency is considered volatile due to the many periods of inflation and devaluation, it was one of the better-performing currencies in South America in 2022. According to a Concluding Statement by the International Monetary Fund:
“The peso appreciated by 13 percent against the US dollar in nominal terms, and by 20 percent in real effective terms in 2022, driven by interest rate differentials, favorable terms of trade, and increased US dollar liquidity.”
As a result of the recurring periods of serious inflation and devaluation of the Uruguayan peso, and the consequent lack of trust Uruguayans have in the stability of their currency, many expensive items like vehicles and real estate are valued according to US dollars instead of the national currency. In other words, the prices for these types of goods are set according to the USD instead of the peso.
We should note that Uruguay is one of the first countries that has attempted to introduce a central bank digital currency (CBDC), a form of digital currency that is legal tender and controlled by the central bank of the country. From 2017 to 2018, it carried out the e-Peso program, which many considered a success. That being said, there have been no reports that Uruguay intends to implement the e-peso at a large scale as of yet.
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