So back in 2008, the national mint of Chile produced
millions of coins with this one, like tiny but
completely catastrophic flaw. Oh, right. The
typo. Yeah, the typo. They literally spelled
the name of their own country wrong. C -H -I
-I -E instead of C -H -I -L -E. Which is wild.
Right. I mean, you would assume a sovereign nation
misspelling its own name on legal tender would
trigger like a financial panic or at least a
massive government recall, right? You'd think
so, yeah. But instead, the government just kind
of shrugged. They left the pipe hole in circulation
and those nine cent coins instantly became these
hoarded collector's items. Which, you know, completely
shatters the illusion of what we collectively
believe money to be. Totally. Because we tend
to view currency as this rigid, serious, immutable
institution. But the story of the Chilean peso
really proves that money is highly malleable.
It really is. It's a real -time physical record
of human error, political upheaval, and just
massive macroeconomic turbulence. Welcome to
today's Deep Dive. We are taking a really comprehensive
stack of sources, mostly centered on this incredibly
detailed Wikipedia overview, and we are unpacking
the story of the Chilean peso. It's a fascinating
story. It really is. So whether you are, you
know, prepping for a business trip to Santiago
or maybe you're tracking South American markets
or you just love a good rabbit hole into how
global economics actually function under pressure,
you're in the right place. Absolutely. We're
basically going to explore the peso as a mirror
for Chile itself. And just to establish our baseline
parameters here, the current peso is the official
currency of Chile. You will see it symbolized
by the standard dollar sign or CLP. to distinguish
it globally. And as of July 2024, it was trading
around 940 pesos to one US dollar. But we are
pushing way beyond the exchange rate today. We're
looking at how inflation literally vaporized
entire categories of coins. Literally wiped them
out. Wiped them out. And we'll get into how the
global copper market and domestic elections dictate
the actual cash in a Gillian's pocket. Plus,
the sheer mechanics behind a central bank throwing
a $25 billion anchor to stop a currency from
crashing. But before we can analyze those massive
global forces, we really have to look at the
anatomy of the money itself. The physical stuff.
Exactly. We need to examine how inflation acts
as this invisible physical force that shapes
what people actually carry in their wallets.
So let's trace this back to 1975, which is when
the current iteration of the peso was introduced.
It replaced the previous currency, which was
the escudo. Right. And the transition, it didn't
exactly happen smoothly. It was executed at this
staggering rate of one peso to 1 ,000 escudos.
Let's contextualize what that actually means,
because chopping three zeros off a national currency,
what does that feel like on the ground? It sounds
chaotic. It is when a government is forced to
execute a one to one thousand currency swap.
It means the underlying economy is running so
incredibly hot that everyday math has just become
unmanageable. Like you can't even calculate prices
anymore. Exactly. Citizens are carrying these
thick stacks of bills just to purchase a loaf
of bread. So the government hits the reset button
purely to make commerce mathematically functional
again. And if a government hits that reset button
to stabilize the system, you naturally expect
the new money to hold its shape, right? You would
hope so. Right. So they rolled out this new peso
and divided it into 100 centavos. But the sources
show that less than a decade later, by 1983,
inflation had already rendered those centavos
completely obsolete. Yeah, they couldn't purchase
a single good or service. Nothing. And by 1996,
the centavo was officially dead. The government
just stopped recognizing it as a subdivision.
Well, think about the physical mechanics of minting
money. The state has to purchase raw metal, they
have to operate these massive stamping machines,
and then physically distribute the coins. Right,
which all costs money. Exactly. When systemic
inflation drives the cost of basic goods up,
the purchasing power of the smallest denomination
drops to absolutely zero. So very quickly, the
raw metal and the manufacturing process cost
the government significantly more than the face
value of the coin itself. The state is essentially
burning money to make money. Which makes pure
mathematical sense to just stop production. And
this dynamic, it didn't just end in the 90s?
No, not at all. Fast forward to 2017 and the
Chilean mint gave up on the one and five peso
coins entirely. Production ceased and the public
was actually instructed to bring their jars of
these low value coins directly to the mint to
swap them for larger bills. And this structural
change forced a completely new operational reality
for commercial entities. In late 2017, Chile
instituted a mandatory rounding rule for cash
payments. Right, the rounding rule. Yeah, if
a total ends in one through five pesos, the cashier
rounds down. If it ends in six through nine,
they round up. Okay, let's unpack this for a
second. Wait, does this apply across the board?
Like if I swipe a credit card for an exact amount,
am I getting rounded up to the nearest 10? No,
and that is a really crucial distinction. Electronic
transactions, so credit cards, bank transfers,
checks, those remain exact to the single peso.
The rounding only applies to physical cash. Oh,
wow. Yeah, it creates this fascinating bifurcated
system where the physical money supply operates
on a slightly different mathematical reality
than the digital ledger. I find the consumer
psychology of this so fascinating. I mean, in
the U .S., we have this agonizing decades long
debate over eliminating the penny. Right. The
zinc debate. Exactly. Economists scream that
it's a waste of zinc, but there's massive emotional
resistance from the public. But if a country
successfully eliminates small change and prices
are no longer exact in cash, it seems like it
would just train consumers to think differently
about value. It really does soften the edges
of a transaction. It makes money feel a little
less rigid. What's fascinating here is how that
subtle shift in transactional psychology cascaded
into completely unexpected sectors. Yes, the
charity. Exactly. The sources highlight this
unintended butterfly effect on charities. For
years, various nonprofit organizations relied
on checkout programs where cashiers would ask
customers to donate their exact remaining change.
Right, like rounding up for a cause. Exactly.
But once the rounding rule structurally eliminated
small change from cash transactions, that vital
stream of micro donations just dried up almost
instantly. The physical coins vanished and literally
took a major funding model down with them. Which
shows how interconnected the physical form of
money is with daily life. But, you know, inflation
physically alters the money, but political shifts
leave a much more intentional mark. Oh, definitely.
the medal itself becomes like a billboard. Yeah,
per se. During the military dictatorship from
1973 to 1990, the five and 10 peso coins featured
a winged female figure breaking a chain around
her wrists. Right. And this imagery was placed
alongside the word libertad, liberty, and the
Roman numeral date of the 1973 coup d 'etat.
And just to be clear for you listening, we aren't
taking any political sides here. We're just looking
objectively at the history printed on the medal.
Right. We're just reporting what the sources
show. Yeah. But as an economic artifact, that
is a master class in omnipresent state messaging.
Because it's literally everywhere. Exactly. A
government can put up posters or broadcast speeches,
but those can be ignored or torn down. Putting
a highly specific, ideologically loaded narrative
into the pocket of every single citizen ensures
the state's version of history changes hands
millions of times a day. Without any friction.
Completely frictionless. But then the regime
falls. Democracy returns, and the imagery immediately
pivots. The new government swapped out that wing
figure for Bernardo O 'Higgins, who was one of
Chile's founding fathers. A very deliberate shift.
Very. And then later, in 2001, a Mapuche woman
was added to the 100 peso coin to recognize the
indigenous heritage of the country. So the physical
money evolves exactly as the national identity
evolves. It essentially traces the shifting consensus
of who and what the nation wants to project to
itself. Which ironically brings us back to that
spectacular 2008 blunder I mentioned at the start,
the Chi -I -C coin. The Mint issued a whole series
of 50 peso coins with the country's name misspelled,
and they didn't officially catch the air until
2010. Two years later. Two whole years. So I
want to challenge you on the economics of this.
If a publicly traded company misspelled its name
on its own stock certificates, the market would
view it as a sign of profound incompetence and
the stock value would likely tank. Oh, absolutely.
So why did these nine cent coins instantly become
hoarded higher value items instead of causing
a panic? Well. If we connect this to the bigger
picture, the U .H .I .E. blunder exposes the
underlying mechanics of fiat currency. OK, how
so? The peso, just like the U .S. dollar or the
euro, it has no intrinsic value. It is not backed
by gold in a vault somewhere. Its value relies
entirely on a collective psychological agreement
that the issuing government guarantees its worth.
So a typo shouldn't inherently ruin the value.
As long as the collective population still agrees
it functions as a 50 peso coin to buy. you know,
a piece of candy. Exactly. And the scarcity of
the error actually amplified its value. The collective
agreement held firm on the baseline purchasing
power, but the secondary collector's market added
a massive premium for the novelty. That's wild.
It just proves that the rules of money are entirely
reliant on our shared psychology, even when the
state apparatus makes a glaring manufacturing
mistake. And speaking of manufacturing, the technology
behind the money has completely shifted. They
aren't just stamping metal anymore. The bank
notes have undergone this massive upgrade. Right,
the move to plastic. Yeah. The 1 ,000, 2 ,000,
and 5 ,000 peso notes move from traditional cotton
paper to polymer plastic. Now, the larger 10
,000 and 20 ,000 notes are still cotton paper.
And the mint actually staggers the physical lengths
of the bills based on their value. Yeah, they
all share the exact same height, but they increase
in length by seven millimeters as the face value
goes up. So the 1 ,000 note is the shortest while
the 20 ,000 is the longest. Which is pretty clever.
It serves a dual purpose. It's a highly effective
tactile feature for the visually impaired. And
it drastically complicates the manufacturing
process for counterfeiters. But the most surprising
detail from the sources for me is that these
bills aren't even made in Chile. Right? The polymer
notes are printed in Australia and the cotton
notes are printed in Sweden. The literal manufacturing
of a local economy is completely globalized.
Maintaining the specialized infrastructure required
to produce secure polymer -based currency is
prohibitively expensive. I guess that makes sense.
Yeah, it makes far more economic sense for a
sovereign nation to just outsource the printing
of its money to specialized international facilities
than to try to build and update that capability
domestically. So we have the physical evolution
and the global manufacturing down. But here's
where it gets really interesting. The way everyday
Chileans actually talk about this money reveals
a whole different layer of economics. The slang
is fascinating. It's basically its own dictionary.
Informal Chilean Spanish has an entirely separate
vocabulary for the peso. Nobody says one thousand
pesos, they say luka. Right. Five hundred pesos
is a kina. And if you're talking about big money,
one million pesos is a pelo. The linguistic endurance
here is incredibly noteworthy. The term Luca
was actually used for 1 ,000 escudos prior to
the 1975 currency switch. Oh wow, so it carried
over. Exactly. The slang outlived the actual
currency it was invented to describe and seamlessly
attached itself to the new system. So let's look
at the term Gamba, which translates to prawn.
Originally, between 1933 and 1959, the 100 peso
note was printed in a reddish color, so people
started calling it a prawn, a gamba. Makes sense.
Today, a gamba can still mean 100 pesos. But
if someone tells you they just bought a branded
computer and it cost them two gambas, they mean
200 ,000 pesos. Because the listener has to rely
entirely on contextual deduction to understand
the transaction, you clearly cannot purchase
a modern computer for 200 pesos. Right. It's
like if Americans started calling a $100 bill
a frog because it's green. No. And then decades
later, because inflation drove prices through
the roof, people start using the word frog to
mean $100 ,000, but only when talking about buying
a car or a house. Exactly. You have to know the
macroeconomic reality of the item being discussed
to know what the slang even means. That phenomenon
is essentially linguistic inflation. As the underlying
math changes and 100 pesos loses its purchasing
power, the public doesn't abandon their cultural
vocabulary. They just adapt it. Right. They upgrade
the benchmark of the slang to represent 100 ,000.
It allows a culture to maintain its unique financial
language, even as systemic inflation relentlessly
moves the decimal point. Speaking of cultural
artifacts moving out of context, I have to bring
up the pop culture crossover from the sources.
Album cover. Yes. We discussed that 10 peso coin
from the Pinochet era earlier, with the winged
angel of liberty and the coup date. Well, in
2007, the rock band Velvet Revolver, featuring
Slash from Guns N' Roses, released an album called
Libertad. And the cover art. The cover art is
a stylized illustration of that exact winged
angel from the Chilean coin. Placing a deeply
polarizing political symbol from a South American
dictatorship onto an American hard rock album
is just a massive contextual collision. It really
is. And the best part, Slash admitted in an interview
that he chose it simply because he thought it
looked cool. He had zero awareness of the heavy
political significance behind the image. To him,
it was just a striking heavy metal angel. which
serves as a stark reminder of how rapidly imagery
is stripped of its original weight when it crosses
borders. A symbol that dictates the localized
political reality of millions of people instantly
becomes a hollow aesthetic in the global pop
culture machine. And that global machine dictates
a lot more than just album covers. You know,
it actually dictates the raw value of the peso
itself. Absolutely. We've seen how inflation
shapes the coins and the slang, but what actually
drives the value of a Luca on the world stage?
The sources trace the central bank of Chile's
shifting strategies over the decades, and they
haven't always let the free market decide. No,
the central bank has utilized several distinct
monetary frameworks. In the 1970s and 80s, they
employed a crawling band system. A crawling band?
Yeah. Instead of locking the peso to a single
fixed exchange rate or letting it float entirely
freely, the government established strict upper
and lower limits of band. The currency was allowed
to fluctuate within those predetermined boundaries,
which would gradually crawl or adjust over time
to account for inflation differentials. So it
gives the market some room to breathe, but the
government keeps a leash on it to prevent wild
destructive swings. Exactly. They later tried
pegging it directly to the US dollar, but since
1999, the Chilean peso has been a free -floating
currency. Its value is purely determined by the
open market of buyers and sellers. But a free
flow does not mean the central bank abandons
the currency entirely. They reserve the right
to intervene during extreme volatility. Like
in 2022? Yes. To understand the mechanics of
that intervention, we have to look at the massive
crisis that hit the peso in 2022. It was a perfect
storm of external macroeconomic shocks and internal
domestic instability. Let's break down those
storm clouds because the sources show it hitting
from all sides. First, the global price of copper
plummeted. Walk us through the mechanism there.
Why does a metal market in London or Shanghai
dictate the value of a physical peso in Santiago?
Because copper is the absolute backbone of Chile's
export economy. When global copper prices drop,
international buyers are sending significantly
fewer US dollars into Chile to purchase that
metal. A massive reduction in the inflow of foreign
currency immediately weakens the peso's position
on the global exchange market. Supply and demand
dictate that when fewer foreign dollars are chasing
Chilean exports, the peso loses value. So less
foreign money coming in weakens the foundation.
Meanwhile, domestically, Chilean inflation hit
a 20 -year high of 14 .1 percent. The huge spike.
Add to that a slowdown in China's economy, which
buys a massive chunk of that exported copper
and intense domestic political uncertainty. Gabriel
Boruch had just taken the presidency and the
country was facing a looming, highly contentious
constitutional referendum. And financial markets
inherently panic at uncertainty. International
investors look at falling export revenues, soaring
local inflation, and major constitutional question
marks. And they initiate capital flight. They
just pull their money out. Exactly. They start
selling off their peso -denominated assets. This
aggressive widespread sell -off resulted in the
currency entering a freefall. It broke a massive
psychological and mathematical barrier. The U
.S. dollar crossed the 1 ,000 peso mark for the
first time in history, peaking over 1 ,050. Which
is unprecedented. That kind of threshold triggers
nationwide panic. So what does this all mean?
The Central Bank of Chile stepped in with an
unprecedented response announcing a $25 billion
intervention program to stabilize the market.
This is where we see the actual mechanics of
a central bank defending its national currency
on the open market. My understanding of this
intervention is that it basically operates like
throwing a massive financial anchor out of a
runaway speedboat. OK, I like that analogy. The
speedboat is the economy heading for the rocks.
The central bank has these huge reserves of US
dollars sitting in a vault. When the peso crashes
because everyone is selling pesos to buy dollars,
the central bank floods the open market with
its own billions of US dollars, aggressively
buying up Chilean pesos. That analogy tracks
perfectly. By absorbing the excess supply of
pesos and flooding the market with highly desired
US dollars, the central bank artificially manufactures
demand for its own currency. It catches the boat.
It does. This massive coordinated purchase intervention
forces the value of the peso back up, stabilizing
the exchange rate and stopping the panic. And
the anchor caught. By 2023, the dollar dropped
back down to around 780 pesos. But the roller
coaster kept going, driven by another mechanical
lever. interest rates. In July 2023, seeing that
domestic inflation was finally starting to cool
off, the central bank announced a massive interest
rate cut, a full 100 basis points, dropping the
rate from 11 .25 percent down to 10 .25 percent.
Which was the sharpest rate drop the country
had seen since 2009. And almost immediately after
that cut, the U .S. dollar climbed right back
up to 860 pesos. Break down the mechanics there.
How does cutting an interest rate locally cause
the US dollar to strengthen against the peso
globally? It comes down to yield and capital
flow. When a central bank cuts interest rates
by a hundred basis points, the yield on local
bank deposits and government bonds drops significantly.
So it's less attractive for investors. Exactly.
Foreign investors who had their capital parked
in Chilean institutions suddenly see lower returns
on their money. In response, they pull their
capital out, converting their pesos back into
US dollars to invest in other countries with
higher interest rates. And that causes the drop.
Yes. That massive wave of selling pesos and buying
dollars floods the market with Chilean currency
again, which drives its value down relative to
the dollar. It really highlights how a free -floating
national currency is essentially a live real
-time report card on a country's global standing.
It constantly recalculates everything. Local
elections, the yield on a time deposit, consumer
confidence, and the price of raw copper half
a world away. It's all distilled right into the
price of a single Luca. This raises an important
question about the interconnectedness of modern
economies. You simply cannot isolate a domestic
currency from the global supply chain or international
monetary policy. They are inextricably linked.
This entire story is just a master class in adaptation.
We've seen the peso shed its entobos when the
raw metal became more expensive than the underlying
math. We've seen it evolve into Swedish printed
staggered length polymer to fight counterfeiting.
It survives massive political shift stamped right
onto its face, volatile copper markets, capital
flight, and even its own mint, spelling the country's
name wrong. As we consider this incredible adaptability,
the source material leaves us with a compelling
final thought regarding the future. We discussed
how the 2017 rounding rule eliminated small change,
nudging the public further toward electronic
payments. As the global economy marches toward
a purely digital reality where cash transactions
vanish entirely, what happens to the physical
artifacts of a culture's economy? If the peso
becomes fully digitized, there are no more polymer
notes to hold. There are no more chains being
broken on a coin. Right. Will vibrant, historically
rooted slang like Gamba and Luca survive the
transition to a cashless society? Or does a nation's
unique financial vocabulary inevitably disappear
when the physical cash that inspired it ceases
to exist? Will the words vanish when the coins
do? That is a truly fascinating thought to leave
you with. Thank you for joining us on this deep
dive. Keep your curiosity alive. Keep looking
closely at the ordinary objects in your pocket.
And we will be back soon to unpack the next stack
of sources.