Experts have pointed out the benefits that could result for the Colombian peso from an old proposal: eliminating 3 zeros from the currency. In this way, the current 50,000 peso bill would become 50 pesos, the 20,000 peso bill would become 20, and the 10,000 peso bill would become 10 pesos. This measure has been under consideration for years, and a bill was even presented to approve this change and implement it.
The measure established a transition period between 2020 and 2023, with the latter year being when the currency change should have been finalised. However, the proposed law was ultimately rejected by the legislature in 2018.
Today, although there is no proposal to reintroduce the law, experts are analyzing the merits of the measure, and the former Minister of Finance under President Juan Manuel Santos has explained the correct way for it to be implemented.
Inflation and the Colombian Peso
Currently, inflation in Colombia is at 11.43%. This is a high figure, especially in the context of high inflation globally, especially since the start of the war in Ukraine in February 2022. However, high inflation in Colombia is not a new phenomenon. The country has historically experienced high inflation rates. For example, considering prices in 1960 and 2023, inflation over these 63 years has been 302,628.32%. This means that an item that cost 100 pesos in 1960 would now cost 302,628.32 pesos.
This is why in present-day Colombia, there isn’t even a 1 peso coin, and, for example, the minimum wage is counted in over 1 million pesos, a figure that does not even reach 300 dollars in terms of exchange rates
Mauricio Cardenas Supports the Idea
Mauricio Cardenas served as the Minister of Finance from 2012 to 2018, spanning 6 years, during the latter part of President Juan Manuel Santos’s first term and throughout his second term. Prior to that, he served as the Minister of Mines and Energy under the same president for another year. Therefore, he was a trusted figure in the Colombian government who held office for a total of 8 years. He has always been associated with the Conservative Party.
Cardenas was the minister who presented the bill, now five years ago, to change the values of the Colombian currency. Although the bill did not pass parliamentary debate and was ultimately dismissed, the former minister continues to advocate for the measure. This week, in response to a question on his social media, Cardenas once again explained the merits of the measure.
When asked if it was urgent to remove the 4 zeros from the Colombian peso, Cardenas responded with a resounding “yes,” but qualified that this process would only be viable “when inflation drops below 4%.” According to the former minister, it was for political reasons that the previous government sank a sensible, gradual, and low-cost bill that they had agreed upon with the Central Bank of Colombia. He lamented that this fact “will go down in history as a missed opportunity.”
Benefits of the Measure
The Central Bank of Colombia agrees with most experts that the measure would bring benefits. According to the central bank, the primary benefit would be reflected in business accounting and money management due to the simplification of the currency. Additionally, experts also argue that the measure could help clean the national economy of illicit funds.
Furthermore, the issuing bank also points out that the measure would align the currency with the international system because, compared to other currencies, Colombia currently uses figures that are not easily comprehensible to most analysts and people outside the country.
The main argument against the measure, according to some analysts, is the high cost it would entail. For example, in 2018, the Governor of the Central Bank, Juan José Echavarría, estimated that implementing the change proposed by the government that year would cost the state 400 billion pesos.
Another potential drawback would be the supposed psychological impact of the measure on some people in Colombia. When 3 zeros are removed, many people might perceive their currency as less valuable. However, this possibility would not be a real detriment to the economy or the currency itself.
To prevent this from happening, experts speak of the need to implement education that explains the nature of the measure and prevents people from trivializing payments that may appear smaller but are not in reality.
The logistics involved in explaining the measure would also have a cost that the state would need to cover. Some analysts believe that the transition period could also bring inconveniences, as it would be a time of economic instability for the country that could affect it internationally. In the last proposal in 2018, Minister Cárdenas had envisioned a transition period of only 3 years, normalizing the currency by 2023.
Questions about the Transition Period
Not all experts and analysts share this view. Many believe that the transition period should not pose major complications and that these would be manageable. Additionally, as happened in Europe when the euro was adopted, preparations were lengthy, but the transition period was ultimately only 6 months long, so it might not be necessary for such a long time in Colombia either.
One of the proponents of this viewpoint is also the former Minister of Finance, Alberto Carrasquilla, who succeeded Cárdenas in August 2018, at the start of President Ivan Duque’s term.
A Measure Without Set Dates
Although there seems to be a certain consensus that the measure would bring more benefits than drawbacks, there is currently no proposal in place to be discussed in the legislative branch. The attempt by former Minister Cárdenas, with Law 231/18 in April 2018, was the latest of 7 attempts in a century to modify the denomination of the currency in Colombia.
The government of President Petro has not stated its position on this idea. Given the significant reforms it is attempting to advance and the effort required to secure the necessary alliances for approval, it does not appear that the current government is considering revisiting this initiative, which periodically appears in Colombian political and social discourse.