WEBVTT 00:00:00.000 --> 00:00:04.379 So back in 2008, the national mint of Chile produced 00:00:04.379 --> 00:00:07.259 millions of coins with this one, like tiny but 00:00:07.259 --> 00:00:09.800 completely catastrophic flaw. Oh, right. The 00:00:09.800 --> 00:00:12.220 typo. Yeah, the typo. They literally spelled 00:00:12.220 --> 00:00:15.259 the name of their own country wrong. C -H -I 00:00:15.259 --> 00:00:18.629 -I -E instead of C -H -I -L -E. Which is wild. 00:00:18.809 --> 00:00:21.129 Right. I mean, you would assume a sovereign nation 00:00:21.129 --> 00:00:23.350 misspelling its own name on legal tender would 00:00:23.350 --> 00:00:26.690 trigger like a financial panic or at least a 00:00:26.690 --> 00:00:28.589 massive government recall, right? You'd think 00:00:28.589 --> 00:00:30.329 so, yeah. But instead, the government just kind 00:00:30.329 --> 00:00:32.500 of shrugged. They left the pipe hole in circulation 00:00:32.500 --> 00:00:35.079 and those nine cent coins instantly became these 00:00:35.079 --> 00:00:38.159 hoarded collector's items. Which, you know, completely 00:00:38.159 --> 00:00:40.140 shatters the illusion of what we collectively 00:00:40.140 --> 00:00:42.520 believe money to be. Totally. Because we tend 00:00:42.520 --> 00:00:45.539 to view currency as this rigid, serious, immutable 00:00:45.539 --> 00:00:48.259 institution. But the story of the Chilean peso 00:00:48.259 --> 00:00:51.939 really proves that money is highly malleable. 00:00:52.060 --> 00:00:54.640 It really is. It's a real -time physical record 00:00:54.640 --> 00:00:58.460 of human error, political upheaval, and just 00:00:58.460 --> 00:01:01.100 massive macroeconomic turbulence. Welcome to 00:01:01.100 --> 00:01:04.980 today's Deep Dive. We are taking a really comprehensive 00:01:04.980 --> 00:01:08.079 stack of sources, mostly centered on this incredibly 00:01:08.079 --> 00:01:11.560 detailed Wikipedia overview, and we are unpacking 00:01:11.560 --> 00:01:14.549 the story of the Chilean peso. It's a fascinating 00:01:14.549 --> 00:01:17.569 story. It really is. So whether you are, you 00:01:17.569 --> 00:01:19.450 know, prepping for a business trip to Santiago 00:01:19.450 --> 00:01:21.530 or maybe you're tracking South American markets 00:01:21.530 --> 00:01:24.329 or you just love a good rabbit hole into how 00:01:24.329 --> 00:01:26.530 global economics actually function under pressure, 00:01:27.049 --> 00:01:28.969 you're in the right place. Absolutely. We're 00:01:28.969 --> 00:01:31.030 basically going to explore the peso as a mirror 00:01:31.030 --> 00:01:33.790 for Chile itself. And just to establish our baseline 00:01:33.790 --> 00:01:37.290 parameters here, the current peso is the official 00:01:37.290 --> 00:01:40.129 currency of Chile. You will see it symbolized 00:01:40.129 --> 00:01:43.500 by the standard dollar sign or CLP. to distinguish 00:01:43.500 --> 00:01:47.219 it globally. And as of July 2024, it was trading 00:01:47.219 --> 00:01:51.760 around 940 pesos to one US dollar. But we are 00:01:51.760 --> 00:01:54.099 pushing way beyond the exchange rate today. We're 00:01:54.099 --> 00:01:56.540 looking at how inflation literally vaporized 00:01:56.540 --> 00:01:59.040 entire categories of coins. Literally wiped them 00:01:59.040 --> 00:02:01.769 out. Wiped them out. And we'll get into how the 00:02:01.769 --> 00:02:04.489 global copper market and domestic elections dictate 00:02:04.489 --> 00:02:07.129 the actual cash in a Gillian's pocket. Plus, 00:02:07.469 --> 00:02:09.889 the sheer mechanics behind a central bank throwing 00:02:09.889 --> 00:02:12.710 a $25 billion anchor to stop a currency from 00:02:12.710 --> 00:02:15.050 crashing. But before we can analyze those massive 00:02:15.050 --> 00:02:17.009 global forces, we really have to look at the 00:02:17.009 --> 00:02:19.330 anatomy of the money itself. The physical stuff. 00:02:19.669 --> 00:02:22.370 Exactly. We need to examine how inflation acts 00:02:22.370 --> 00:02:25.909 as this invisible physical force that shapes 00:02:25.909 --> 00:02:28.250 what people actually carry in their wallets. 00:02:28.449 --> 00:02:30.949 So let's trace this back to 1975, which is when 00:02:30.949 --> 00:02:33.009 the current iteration of the peso was introduced. 00:02:33.449 --> 00:02:35.550 It replaced the previous currency, which was 00:02:35.550 --> 00:02:39.030 the escudo. Right. And the transition, it didn't 00:02:39.030 --> 00:02:41.449 exactly happen smoothly. It was executed at this 00:02:41.449 --> 00:02:44.610 staggering rate of one peso to 1 ,000 escudos. 00:02:44.849 --> 00:02:46.650 Let's contextualize what that actually means, 00:02:46.830 --> 00:02:49.169 because chopping three zeros off a national currency, 00:02:49.530 --> 00:02:51.469 what does that feel like on the ground? It sounds 00:02:51.469 --> 00:02:54.460 chaotic. It is when a government is forced to 00:02:54.460 --> 00:02:57.000 execute a one to one thousand currency swap. 00:02:57.460 --> 00:02:59.819 It means the underlying economy is running so 00:02:59.819 --> 00:03:02.460 incredibly hot that everyday math has just become 00:03:02.460 --> 00:03:04.919 unmanageable. Like you can't even calculate prices 00:03:04.919 --> 00:03:07.939 anymore. Exactly. Citizens are carrying these 00:03:07.939 --> 00:03:10.400 thick stacks of bills just to purchase a loaf 00:03:10.400 --> 00:03:13.500 of bread. So the government hits the reset button 00:03:13.500 --> 00:03:16.300 purely to make commerce mathematically functional 00:03:16.300 --> 00:03:18.740 again. And if a government hits that reset button 00:03:18.740 --> 00:03:22.259 to stabilize the system, you naturally expect 00:03:22.280 --> 00:03:24.280 the new money to hold its shape, right? You would 00:03:24.280 --> 00:03:26.860 hope so. Right. So they rolled out this new peso 00:03:26.860 --> 00:03:30.120 and divided it into 100 centavos. But the sources 00:03:30.120 --> 00:03:33.780 show that less than a decade later, by 1983, 00:03:34.460 --> 00:03:36.759 inflation had already rendered those centavos 00:03:36.759 --> 00:03:39.020 completely obsolete. Yeah, they couldn't purchase 00:03:39.020 --> 00:03:42.719 a single good or service. Nothing. And by 1996, 00:03:43.099 --> 00:03:45.479 the centavo was officially dead. The government 00:03:45.479 --> 00:03:47.620 just stopped recognizing it as a subdivision. 00:03:47.860 --> 00:03:49.960 Well, think about the physical mechanics of minting 00:03:49.960 --> 00:03:52.939 money. The state has to purchase raw metal, they 00:03:52.939 --> 00:03:55.000 have to operate these massive stamping machines, 00:03:55.419 --> 00:03:57.759 and then physically distribute the coins. Right, 00:03:57.919 --> 00:04:01.000 which all costs money. Exactly. When systemic 00:04:01.000 --> 00:04:03.520 inflation drives the cost of basic goods up, 00:04:03.919 --> 00:04:05.759 the purchasing power of the smallest denomination 00:04:05.759 --> 00:04:09.099 drops to absolutely zero. So very quickly, the 00:04:09.099 --> 00:04:11.400 raw metal and the manufacturing process cost 00:04:11.400 --> 00:04:14.080 the government significantly more than the face 00:04:14.080 --> 00:04:16.779 value of the coin itself. The state is essentially 00:04:16.779 --> 00:04:19.519 burning money to make money. Which makes pure 00:04:19.519 --> 00:04:22.519 mathematical sense to just stop production. And 00:04:22.519 --> 00:04:24.540 this dynamic, it didn't just end in the 90s? 00:04:24.779 --> 00:04:28.000 No, not at all. Fast forward to 2017 and the 00:04:28.000 --> 00:04:30.439 Chilean mint gave up on the one and five peso 00:04:30.439 --> 00:04:34.019 coins entirely. Production ceased and the public 00:04:34.019 --> 00:04:36.639 was actually instructed to bring their jars of 00:04:36.639 --> 00:04:39.259 these low value coins directly to the mint to 00:04:39.259 --> 00:04:41.810 swap them for larger bills. And this structural 00:04:41.810 --> 00:04:44.490 change forced a completely new operational reality 00:04:44.490 --> 00:04:47.870 for commercial entities. In late 2017, Chile 00:04:47.870 --> 00:04:50.449 instituted a mandatory rounding rule for cash 00:04:50.449 --> 00:04:52.769 payments. Right, the rounding rule. Yeah, if 00:04:52.769 --> 00:04:55.050 a total ends in one through five pesos, the cashier 00:04:55.050 --> 00:04:57.250 rounds down. If it ends in six through nine, 00:04:57.310 --> 00:04:59.360 they round up. Okay, let's unpack this for a 00:04:59.360 --> 00:05:01.100 second. Wait, does this apply across the board? 00:05:01.319 --> 00:05:03.379 Like if I swipe a credit card for an exact amount, 00:05:03.399 --> 00:05:05.579 am I getting rounded up to the nearest 10? No, 00:05:05.579 --> 00:05:08.459 and that is a really crucial distinction. Electronic 00:05:08.459 --> 00:05:10.959 transactions, so credit cards, bank transfers, 00:05:11.420 --> 00:05:15.240 checks, those remain exact to the single peso. 00:05:15.660 --> 00:05:18.680 The rounding only applies to physical cash. Oh, 00:05:18.680 --> 00:05:21.459 wow. Yeah, it creates this fascinating bifurcated 00:05:21.459 --> 00:05:24.360 system where the physical money supply operates 00:05:24.360 --> 00:05:26.819 on a slightly different mathematical reality 00:05:26.819 --> 00:05:29.420 than the digital ledger. I find the consumer 00:05:29.420 --> 00:05:32.379 psychology of this so fascinating. I mean, in 00:05:32.379 --> 00:05:35.000 the U .S., we have this agonizing decades long 00:05:35.000 --> 00:05:37.279 debate over eliminating the penny. Right. The 00:05:37.279 --> 00:05:39.459 zinc debate. Exactly. Economists scream that 00:05:39.459 --> 00:05:42.000 it's a waste of zinc, but there's massive emotional 00:05:42.000 --> 00:05:44.220 resistance from the public. But if a country 00:05:44.220 --> 00:05:46.860 successfully eliminates small change and prices 00:05:46.860 --> 00:05:49.240 are no longer exact in cash, it seems like it 00:05:49.240 --> 00:05:51.019 would just train consumers to think differently 00:05:51.019 --> 00:05:53.480 about value. It really does soften the edges 00:05:53.480 --> 00:05:55.600 of a transaction. It makes money feel a little 00:05:55.600 --> 00:05:58.300 less rigid. What's fascinating here is how that 00:05:58.300 --> 00:06:01.439 subtle shift in transactional psychology cascaded 00:06:01.439 --> 00:06:03.920 into completely unexpected sectors. Yes, the 00:06:03.920 --> 00:06:06.699 charity. Exactly. The sources highlight this 00:06:06.699 --> 00:06:09.639 unintended butterfly effect on charities. For 00:06:09.639 --> 00:06:12.120 years, various nonprofit organizations relied 00:06:12.120 --> 00:06:14.740 on checkout programs where cashiers would ask 00:06:14.740 --> 00:06:17.060 customers to donate their exact remaining change. 00:06:17.290 --> 00:06:19.730 Right, like rounding up for a cause. Exactly. 00:06:20.170 --> 00:06:22.410 But once the rounding rule structurally eliminated 00:06:22.410 --> 00:06:25.470 small change from cash transactions, that vital 00:06:25.470 --> 00:06:27.810 stream of micro donations just dried up almost 00:06:27.810 --> 00:06:31.389 instantly. The physical coins vanished and literally 00:06:31.389 --> 00:06:33.610 took a major funding model down with them. Which 00:06:33.610 --> 00:06:35.870 shows how interconnected the physical form of 00:06:35.870 --> 00:06:39.430 money is with daily life. But, you know, inflation 00:06:39.430 --> 00:06:42.149 physically alters the money, but political shifts 00:06:42.149 --> 00:06:44.490 leave a much more intentional mark. Oh, definitely. 00:06:44.670 --> 00:06:47.110 the medal itself becomes like a billboard. Yeah, 00:06:47.170 --> 00:06:49.430 per se. During the military dictatorship from 00:06:49.430 --> 00:06:53.829 1973 to 1990, the five and 10 peso coins featured 00:06:53.829 --> 00:06:56.189 a winged female figure breaking a chain around 00:06:56.189 --> 00:06:58.670 her wrists. Right. And this imagery was placed 00:06:58.670 --> 00:07:01.689 alongside the word libertad, liberty, and the 00:07:01.689 --> 00:07:04.490 Roman numeral date of the 1973 coup d 'etat. 00:07:05.129 --> 00:07:06.990 And just to be clear for you listening, we aren't 00:07:06.990 --> 00:07:08.910 taking any political sides here. We're just looking 00:07:08.910 --> 00:07:10.949 objectively at the history printed on the medal. 00:07:11.120 --> 00:07:12.839 Right. We're just reporting what the sources 00:07:12.839 --> 00:07:15.480 show. Yeah. But as an economic artifact, that 00:07:15.480 --> 00:07:17.959 is a master class in omnipresent state messaging. 00:07:18.019 --> 00:07:20.779 Because it's literally everywhere. Exactly. A 00:07:20.779 --> 00:07:23.379 government can put up posters or broadcast speeches, 00:07:23.379 --> 00:07:26.199 but those can be ignored or torn down. Putting 00:07:26.199 --> 00:07:29.680 a highly specific, ideologically loaded narrative 00:07:29.680 --> 00:07:32.600 into the pocket of every single citizen ensures 00:07:32.600 --> 00:07:35.319 the state's version of history changes hands 00:07:35.319 --> 00:07:38.000 millions of times a day. Without any friction. 00:07:38.300 --> 00:07:40.379 Completely frictionless. But then the regime 00:07:40.430 --> 00:07:44.050 falls. Democracy returns, and the imagery immediately 00:07:44.050 --> 00:07:47.689 pivots. The new government swapped out that wing 00:07:47.689 --> 00:07:50.689 figure for Bernardo O 'Higgins, who was one of 00:07:50.689 --> 00:07:53.389 Chile's founding fathers. A very deliberate shift. 00:07:53.689 --> 00:07:57.290 Very. And then later, in 2001, a Mapuche woman 00:07:57.290 --> 00:08:00.610 was added to the 100 peso coin to recognize the 00:08:00.610 --> 00:08:02.839 indigenous heritage of the country. So the physical 00:08:02.839 --> 00:08:04.959 money evolves exactly as the national identity 00:08:04.959 --> 00:08:07.819 evolves. It essentially traces the shifting consensus 00:08:07.819 --> 00:08:10.240 of who and what the nation wants to project to 00:08:10.240 --> 00:08:12.800 itself. Which ironically brings us back to that 00:08:12.800 --> 00:08:15.540 spectacular 2008 blunder I mentioned at the start, 00:08:15.980 --> 00:08:19.639 the Chi -I -C coin. The Mint issued a whole series 00:08:19.639 --> 00:08:22.420 of 50 peso coins with the country's name misspelled, 00:08:22.959 --> 00:08:24.720 and they didn't officially catch the air until 00:08:24.720 --> 00:08:27.670 2010. Two years later. Two whole years. So I 00:08:27.670 --> 00:08:29.449 want to challenge you on the economics of this. 00:08:29.850 --> 00:08:32.149 If a publicly traded company misspelled its name 00:08:32.149 --> 00:08:34.629 on its own stock certificates, the market would 00:08:34.629 --> 00:08:37.149 view it as a sign of profound incompetence and 00:08:37.149 --> 00:08:39.750 the stock value would likely tank. Oh, absolutely. 00:08:40.029 --> 00:08:43.009 So why did these nine cent coins instantly become 00:08:43.009 --> 00:08:45.950 hoarded higher value items instead of causing 00:08:45.950 --> 00:08:48.570 a panic? Well. If we connect this to the bigger 00:08:48.570 --> 00:08:52.269 picture, the U .H .I .E. blunder exposes the 00:08:52.269 --> 00:08:55.169 underlying mechanics of fiat currency. OK, how 00:08:55.169 --> 00:08:57.789 so? The peso, just like the U .S. dollar or the 00:08:57.789 --> 00:09:00.710 euro, it has no intrinsic value. It is not backed 00:09:00.710 --> 00:09:04.350 by gold in a vault somewhere. Its value relies 00:09:04.350 --> 00:09:07.129 entirely on a collective psychological agreement 00:09:07.129 --> 00:09:09.309 that the issuing government guarantees its worth. 00:09:09.629 --> 00:09:11.950 So a typo shouldn't inherently ruin the value. 00:09:12.110 --> 00:09:14.129 As long as the collective population still agrees 00:09:14.129 --> 00:09:17.429 it functions as a 50 peso coin to buy. you know, 00:09:17.629 --> 00:09:20.690 a piece of candy. Exactly. And the scarcity of 00:09:20.690 --> 00:09:23.950 the error actually amplified its value. The collective 00:09:23.950 --> 00:09:26.250 agreement held firm on the baseline purchasing 00:09:26.250 --> 00:09:28.850 power, but the secondary collector's market added 00:09:28.850 --> 00:09:31.750 a massive premium for the novelty. That's wild. 00:09:32.009 --> 00:09:34.570 It just proves that the rules of money are entirely 00:09:34.570 --> 00:09:37.370 reliant on our shared psychology, even when the 00:09:37.370 --> 00:09:39.669 state apparatus makes a glaring manufacturing 00:09:39.669 --> 00:09:43.000 mistake. And speaking of manufacturing, the technology 00:09:43.000 --> 00:09:45.559 behind the money has completely shifted. They 00:09:45.559 --> 00:09:48.220 aren't just stamping metal anymore. The bank 00:09:48.220 --> 00:09:50.740 notes have undergone this massive upgrade. Right, 00:09:50.860 --> 00:09:54.059 the move to plastic. Yeah. The 1 ,000, 2 ,000, 00:09:54.120 --> 00:09:57.299 and 5 ,000 peso notes move from traditional cotton 00:09:57.299 --> 00:10:00.740 paper to polymer plastic. Now, the larger 10 00:10:00.740 --> 00:10:03.299 ,000 and 20 ,000 notes are still cotton paper. 00:10:03.899 --> 00:10:06.120 And the mint actually staggers the physical lengths 00:10:06.120 --> 00:10:08.240 of the bills based on their value. Yeah, they 00:10:08.240 --> 00:10:10.279 all share the exact same height, but they increase 00:10:10.279 --> 00:10:12.419 in length by seven millimeters as the face value 00:10:12.419 --> 00:10:14.820 goes up. So the 1 ,000 note is the shortest while 00:10:14.820 --> 00:10:17.100 the 20 ,000 is the longest. Which is pretty clever. 00:10:17.460 --> 00:10:20.759 It serves a dual purpose. It's a highly effective 00:10:20.759 --> 00:10:23.600 tactile feature for the visually impaired. And 00:10:23.600 --> 00:10:25.820 it drastically complicates the manufacturing 00:10:25.820 --> 00:10:28.379 process for counterfeiters. But the most surprising 00:10:28.379 --> 00:10:30.840 detail from the sources for me is that these 00:10:30.840 --> 00:10:33.399 bills aren't even made in Chile. Right? The polymer 00:10:33.399 --> 00:10:35.779 notes are printed in Australia and the cotton 00:10:35.779 --> 00:10:39.320 notes are printed in Sweden. The literal manufacturing 00:10:39.320 --> 00:10:42.259 of a local economy is completely globalized. 00:10:42.419 --> 00:10:44.659 Maintaining the specialized infrastructure required 00:10:44.659 --> 00:10:47.659 to produce secure polymer -based currency is 00:10:47.659 --> 00:10:50.080 prohibitively expensive. I guess that makes sense. 00:10:50.220 --> 00:10:52.399 Yeah, it makes far more economic sense for a 00:10:52.399 --> 00:10:54.600 sovereign nation to just outsource the printing 00:10:54.600 --> 00:10:57.600 of its money to specialized international facilities 00:10:57.600 --> 00:10:59.980 than to try to build and update that capability 00:10:59.980 --> 00:11:01.919 domestically. So we have the physical evolution 00:11:01.919 --> 00:11:04.659 and the global manufacturing down. But here's 00:11:04.659 --> 00:11:07.279 where it gets really interesting. The way everyday 00:11:07.279 --> 00:11:09.759 Chileans actually talk about this money reveals 00:11:09.759 --> 00:11:12.679 a whole different layer of economics. The slang 00:11:12.679 --> 00:11:15.120 is fascinating. It's basically its own dictionary. 00:11:16.240 --> 00:11:18.539 Informal Chilean Spanish has an entirely separate 00:11:18.539 --> 00:11:22.120 vocabulary for the peso. Nobody says one thousand 00:11:22.120 --> 00:11:25.019 pesos, they say luka. Right. Five hundred pesos 00:11:25.019 --> 00:11:27.779 is a kina. And if you're talking about big money, 00:11:28.320 --> 00:11:32.000 one million pesos is a pelo. The linguistic endurance 00:11:32.000 --> 00:11:34.919 here is incredibly noteworthy. The term Luca 00:11:34.919 --> 00:11:38.399 was actually used for 1 ,000 escudos prior to 00:11:38.399 --> 00:11:41.559 the 1975 currency switch. Oh wow, so it carried 00:11:41.559 --> 00:11:45.159 over. Exactly. The slang outlived the actual 00:11:45.159 --> 00:11:47.679 currency it was invented to describe and seamlessly 00:11:47.679 --> 00:11:50.500 attached itself to the new system. So let's look 00:11:50.500 --> 00:11:52.700 at the term Gamba, which translates to prawn. 00:11:53.799 --> 00:11:57.320 Originally, between 1933 and 1959, the 100 peso 00:11:57.320 --> 00:11:59.419 note was printed in a reddish color, so people 00:11:59.419 --> 00:12:01.799 started calling it a prawn, a gamba. Makes sense. 00:12:02.039 --> 00:12:04.940 Today, a gamba can still mean 100 pesos. But 00:12:04.940 --> 00:12:06.379 if someone tells you they just bought a branded 00:12:06.379 --> 00:12:08.539 computer and it cost them two gambas, they mean 00:12:08.539 --> 00:12:11.379 200 ,000 pesos. Because the listener has to rely 00:12:11.379 --> 00:12:13.659 entirely on contextual deduction to understand 00:12:13.659 --> 00:12:15.620 the transaction, you clearly cannot purchase 00:12:15.620 --> 00:12:18.559 a modern computer for 200 pesos. Right. It's 00:12:18.559 --> 00:12:20.460 like if Americans started calling a $100 bill 00:12:20.460 --> 00:12:23.440 a frog because it's green. No. And then decades 00:12:23.440 --> 00:12:25.480 later, because inflation drove prices through 00:12:25.480 --> 00:12:28.320 the roof, people start using the word frog to 00:12:28.320 --> 00:12:31.460 mean $100 ,000, but only when talking about buying 00:12:31.460 --> 00:12:34.539 a car or a house. Exactly. You have to know the 00:12:34.539 --> 00:12:37.340 macroeconomic reality of the item being discussed 00:12:37.340 --> 00:12:40.500 to know what the slang even means. That phenomenon 00:12:40.500 --> 00:12:43.529 is essentially linguistic inflation. As the underlying 00:12:43.529 --> 00:12:46.690 math changes and 100 pesos loses its purchasing 00:12:46.690 --> 00:12:49.389 power, the public doesn't abandon their cultural 00:12:49.389 --> 00:12:52.070 vocabulary. They just adapt it. Right. They upgrade 00:12:52.070 --> 00:12:54.929 the benchmark of the slang to represent 100 ,000. 00:12:55.330 --> 00:12:58.169 It allows a culture to maintain its unique financial 00:12:58.169 --> 00:13:01.370 language, even as systemic inflation relentlessly 00:13:01.370 --> 00:13:03.730 moves the decimal point. Speaking of cultural 00:13:03.730 --> 00:13:05.809 artifacts moving out of context, I have to bring 00:13:05.809 --> 00:13:07.629 up the pop culture crossover from the sources. 00:13:07.850 --> 00:13:11.120 Album cover. Yes. We discussed that 10 peso coin 00:13:11.120 --> 00:13:13.580 from the Pinochet era earlier, with the winged 00:13:13.580 --> 00:13:16.460 angel of liberty and the coup date. Well, in 00:13:16.460 --> 00:13:19.559 2007, the rock band Velvet Revolver, featuring 00:13:19.559 --> 00:13:22.580 Slash from Guns N' Roses, released an album called 00:13:22.580 --> 00:13:25.059 Libertad. And the cover art. The cover art is 00:13:25.059 --> 00:13:27.840 a stylized illustration of that exact winged 00:13:27.840 --> 00:13:30.879 angel from the Chilean coin. Placing a deeply 00:13:30.879 --> 00:13:33.679 polarizing political symbol from a South American 00:13:33.679 --> 00:13:36.279 dictatorship onto an American hard rock album 00:13:36.279 --> 00:13:40.080 is just a massive contextual collision. It really 00:13:40.080 --> 00:13:44.120 is. And the best part, Slash admitted in an interview 00:13:44.120 --> 00:13:46.159 that he chose it simply because he thought it 00:13:46.159 --> 00:13:49.080 looked cool. He had zero awareness of the heavy 00:13:49.080 --> 00:13:51.480 political significance behind the image. To him, 00:13:51.600 --> 00:13:54.049 it was just a striking heavy metal angel. which 00:13:54.049 --> 00:13:56.769 serves as a stark reminder of how rapidly imagery 00:13:56.769 --> 00:13:59.149 is stripped of its original weight when it crosses 00:13:59.149 --> 00:14:01.889 borders. A symbol that dictates the localized 00:14:01.889 --> 00:14:04.710 political reality of millions of people instantly 00:14:04.710 --> 00:14:07.149 becomes a hollow aesthetic in the global pop 00:14:07.149 --> 00:14:09.629 culture machine. And that global machine dictates 00:14:09.629 --> 00:14:11.690 a lot more than just album covers. You know, 00:14:11.690 --> 00:14:13.789 it actually dictates the raw value of the peso 00:14:13.789 --> 00:14:16.090 itself. Absolutely. We've seen how inflation 00:14:16.090 --> 00:14:18.669 shapes the coins and the slang, but what actually 00:14:18.669 --> 00:14:21.289 drives the value of a Luca on the world stage? 00:14:21.720 --> 00:14:24.120 The sources trace the central bank of Chile's 00:14:24.120 --> 00:14:26.440 shifting strategies over the decades, and they 00:14:26.440 --> 00:14:28.639 haven't always let the free market decide. No, 00:14:28.860 --> 00:14:31.360 the central bank has utilized several distinct 00:14:31.360 --> 00:14:35.559 monetary frameworks. In the 1970s and 80s, they 00:14:35.559 --> 00:14:39.500 employed a crawling band system. A crawling band? 00:14:39.539 --> 00:14:42.460 Yeah. Instead of locking the peso to a single 00:14:42.460 --> 00:14:45.100 fixed exchange rate or letting it float entirely 00:14:45.100 --> 00:14:48.240 freely, the government established strict upper 00:14:48.240 --> 00:14:51.549 and lower limits of band. The currency was allowed 00:14:51.549 --> 00:14:53.970 to fluctuate within those predetermined boundaries, 00:14:54.409 --> 00:14:56.909 which would gradually crawl or adjust over time 00:14:56.909 --> 00:14:58.990 to account for inflation differentials. So it 00:14:58.990 --> 00:15:01.450 gives the market some room to breathe, but the 00:15:01.450 --> 00:15:03.850 government keeps a leash on it to prevent wild 00:15:03.850 --> 00:15:06.570 destructive swings. Exactly. They later tried 00:15:06.570 --> 00:15:08.730 pegging it directly to the US dollar, but since 00:15:08.730 --> 00:15:11.570 1999, the Chilean peso has been a free -floating 00:15:11.570 --> 00:15:14.269 currency. Its value is purely determined by the 00:15:14.269 --> 00:15:16.529 open market of buyers and sellers. But a free 00:15:16.529 --> 00:15:18.570 flow does not mean the central bank abandons 00:15:18.570 --> 00:15:20.870 the currency entirely. They reserve the right 00:15:20.870 --> 00:15:23.610 to intervene during extreme volatility. Like 00:15:23.610 --> 00:15:26.649 in 2022? Yes. To understand the mechanics of 00:15:26.649 --> 00:15:28.529 that intervention, we have to look at the massive 00:15:28.529 --> 00:15:31.950 crisis that hit the peso in 2022. It was a perfect 00:15:31.950 --> 00:15:34.730 storm of external macroeconomic shocks and internal 00:15:34.730 --> 00:15:37.090 domestic instability. Let's break down those 00:15:37.090 --> 00:15:38.870 storm clouds because the sources show it hitting 00:15:38.870 --> 00:15:42.519 from all sides. First, the global price of copper 00:15:42.519 --> 00:15:45.299 plummeted. Walk us through the mechanism there. 00:15:45.620 --> 00:15:47.820 Why does a metal market in London or Shanghai 00:15:47.820 --> 00:15:50.879 dictate the value of a physical peso in Santiago? 00:15:51.100 --> 00:15:54.519 Because copper is the absolute backbone of Chile's 00:15:54.519 --> 00:15:57.519 export economy. When global copper prices drop, 00:15:57.840 --> 00:15:59.860 international buyers are sending significantly 00:15:59.860 --> 00:16:02.679 fewer US dollars into Chile to purchase that 00:16:02.679 --> 00:16:05.720 metal. A massive reduction in the inflow of foreign 00:16:05.720 --> 00:16:08.179 currency immediately weakens the peso's position 00:16:08.179 --> 00:16:11.100 on the global exchange market. Supply and demand 00:16:11.100 --> 00:16:13.480 dictate that when fewer foreign dollars are chasing 00:16:13.480 --> 00:16:16.659 Chilean exports, the peso loses value. So less 00:16:16.659 --> 00:16:18.980 foreign money coming in weakens the foundation. 00:16:19.700 --> 00:16:21.639 Meanwhile, domestically, Chilean inflation hit 00:16:21.639 --> 00:16:25.460 a 20 -year high of 14 .1 percent. The huge spike. 00:16:25.700 --> 00:16:28.200 Add to that a slowdown in China's economy, which 00:16:28.200 --> 00:16:30.539 buys a massive chunk of that exported copper 00:16:30.539 --> 00:16:34.019 and intense domestic political uncertainty. Gabriel 00:16:34.019 --> 00:16:35.899 Boruch had just taken the presidency and the 00:16:35.899 --> 00:16:38.960 country was facing a looming, highly contentious 00:16:38.960 --> 00:16:41.899 constitutional referendum. And financial markets 00:16:41.899 --> 00:16:45.320 inherently panic at uncertainty. International 00:16:45.320 --> 00:16:48.559 investors look at falling export revenues, soaring 00:16:48.559 --> 00:16:51.740 local inflation, and major constitutional question 00:16:51.740 --> 00:16:54.279 marks. And they initiate capital flight. They 00:16:54.279 --> 00:16:56.159 just pull their money out. Exactly. They start 00:16:56.159 --> 00:16:59.220 selling off their peso -denominated assets. This 00:16:59.220 --> 00:17:02.159 aggressive widespread sell -off resulted in the 00:17:02.159 --> 00:17:04.960 currency entering a freefall. It broke a massive 00:17:04.960 --> 00:17:08.299 psychological and mathematical barrier. The U 00:17:08.299 --> 00:17:10.519 .S. dollar crossed the 1 ,000 peso mark for the 00:17:10.519 --> 00:17:13.799 first time in history, peaking over 1 ,050. Which 00:17:13.799 --> 00:17:16.559 is unprecedented. That kind of threshold triggers 00:17:16.559 --> 00:17:19.220 nationwide panic. So what does this all mean? 00:17:19.680 --> 00:17:21.859 The Central Bank of Chile stepped in with an 00:17:21.859 --> 00:17:25.359 unprecedented response announcing a $25 billion 00:17:25.359 --> 00:17:27.940 intervention program to stabilize the market. 00:17:28.319 --> 00:17:30.359 This is where we see the actual mechanics of 00:17:30.359 --> 00:17:32.900 a central bank defending its national currency 00:17:32.900 --> 00:17:34.980 on the open market. My understanding of this 00:17:34.980 --> 00:17:36.779 intervention is that it basically operates like 00:17:36.779 --> 00:17:39.279 throwing a massive financial anchor out of a 00:17:39.279 --> 00:17:41.980 runaway speedboat. OK, I like that analogy. The 00:17:41.980 --> 00:17:44.319 speedboat is the economy heading for the rocks. 00:17:44.640 --> 00:17:47.720 The central bank has these huge reserves of US 00:17:47.720 --> 00:17:50.279 dollars sitting in a vault. When the peso crashes 00:17:50.279 --> 00:17:52.960 because everyone is selling pesos to buy dollars, 00:17:53.519 --> 00:17:55.420 the central bank floods the open market with 00:17:55.420 --> 00:17:57.920 its own billions of US dollars, aggressively 00:17:57.920 --> 00:18:00.779 buying up Chilean pesos. That analogy tracks 00:18:00.779 --> 00:18:03.420 perfectly. By absorbing the excess supply of 00:18:03.420 --> 00:18:06.039 pesos and flooding the market with highly desired 00:18:06.039 --> 00:18:09.559 US dollars, the central bank artificially manufactures 00:18:09.559 --> 00:18:12.200 demand for its own currency. It catches the boat. 00:18:12.240 --> 00:18:15.779 It does. This massive coordinated purchase intervention 00:18:15.779 --> 00:18:19.619 forces the value of the peso back up, stabilizing 00:18:19.619 --> 00:18:21.680 the exchange rate and stopping the panic. And 00:18:21.680 --> 00:18:24.599 the anchor caught. By 2023, the dollar dropped 00:18:24.599 --> 00:18:27.819 back down to around 780 pesos. But the roller 00:18:27.819 --> 00:18:30.119 coaster kept going, driven by another mechanical 00:18:30.119 --> 00:18:33.779 lever. interest rates. In July 2023, seeing that 00:18:33.779 --> 00:18:35.619 domestic inflation was finally starting to cool 00:18:35.619 --> 00:18:37.900 off, the central bank announced a massive interest 00:18:37.900 --> 00:18:40.359 rate cut, a full 100 basis points, dropping the 00:18:40.359 --> 00:18:43.680 rate from 11 .25 percent down to 10 .25 percent. 00:18:43.799 --> 00:18:45.700 Which was the sharpest rate drop the country 00:18:45.700 --> 00:18:49.259 had seen since 2009. And almost immediately after 00:18:49.259 --> 00:18:51.539 that cut, the U .S. dollar climbed right back 00:18:51.539 --> 00:18:55.940 up to 860 pesos. Break down the mechanics there. 00:18:56.500 --> 00:18:59.259 How does cutting an interest rate locally cause 00:18:59.259 --> 00:19:01.640 the US dollar to strengthen against the peso 00:19:01.640 --> 00:19:04.359 globally? It comes down to yield and capital 00:19:04.359 --> 00:19:06.980 flow. When a central bank cuts interest rates 00:19:06.980 --> 00:19:09.880 by a hundred basis points, the yield on local 00:19:09.880 --> 00:19:12.680 bank deposits and government bonds drops significantly. 00:19:12.940 --> 00:19:15.079 So it's less attractive for investors. Exactly. 00:19:15.640 --> 00:19:17.619 Foreign investors who had their capital parked 00:19:17.619 --> 00:19:20.500 in Chilean institutions suddenly see lower returns 00:19:20.500 --> 00:19:22.839 on their money. In response, they pull their 00:19:22.839 --> 00:19:25.359 capital out, converting their pesos back into 00:19:25.359 --> 00:19:27.619 US dollars to invest in other countries with 00:19:27.619 --> 00:19:29.680 higher interest rates. And that causes the drop. 00:19:30.019 --> 00:19:33.279 Yes. That massive wave of selling pesos and buying 00:19:33.279 --> 00:19:35.720 dollars floods the market with Chilean currency 00:19:35.720 --> 00:19:38.400 again, which drives its value down relative to 00:19:38.400 --> 00:19:40.779 the dollar. It really highlights how a free -floating 00:19:40.779 --> 00:19:43.420 national currency is essentially a live real 00:19:43.420 --> 00:19:46.240 -time report card on a country's global standing. 00:19:46.279 --> 00:19:49.059 It constantly recalculates everything. Local 00:19:49.059 --> 00:19:52.160 elections, the yield on a time deposit, consumer 00:19:52.160 --> 00:19:54.440 confidence, and the price of raw copper half 00:19:54.440 --> 00:19:57.079 a world away. It's all distilled right into the 00:19:57.079 --> 00:20:00.000 price of a single Luca. This raises an important 00:20:00.000 --> 00:20:02.099 question about the interconnectedness of modern 00:20:02.099 --> 00:20:05.660 economies. You simply cannot isolate a domestic 00:20:05.660 --> 00:20:08.380 currency from the global supply chain or international 00:20:08.380 --> 00:20:11.579 monetary policy. They are inextricably linked. 00:20:12.099 --> 00:20:15.000 This entire story is just a master class in adaptation. 00:20:15.299 --> 00:20:18.140 We've seen the peso shed its entobos when the 00:20:18.140 --> 00:20:20.819 raw metal became more expensive than the underlying 00:20:20.819 --> 00:20:24.019 math. We've seen it evolve into Swedish printed 00:20:24.019 --> 00:20:26.660 staggered length polymer to fight counterfeiting. 00:20:26.660 --> 00:20:29.759 It survives massive political shift stamped right 00:20:29.759 --> 00:20:32.480 onto its face, volatile copper markets, capital 00:20:32.480 --> 00:20:35.279 flight, and even its own mint, spelling the country's 00:20:35.279 --> 00:20:37.799 name wrong. As we consider this incredible adaptability, 00:20:37.940 --> 00:20:39.819 the source material leaves us with a compelling 00:20:39.819 --> 00:20:42.619 final thought regarding the future. We discussed 00:20:42.619 --> 00:20:46.000 how the 2017 rounding rule eliminated small change, 00:20:46.440 --> 00:20:48.359 nudging the public further toward electronic 00:20:48.359 --> 00:20:51.480 payments. As the global economy marches toward 00:20:51.480 --> 00:20:54.460 a purely digital reality where cash transactions 00:20:54.460 --> 00:20:56.940 vanish entirely, what happens to the physical 00:20:56.940 --> 00:20:59.220 artifacts of a culture's economy? If the peso 00:20:59.220 --> 00:21:02.019 becomes fully digitized, there are no more polymer 00:21:02.019 --> 00:21:04.160 notes to hold. There are no more chains being 00:21:04.160 --> 00:21:07.480 broken on a coin. Right. Will vibrant, historically 00:21:07.480 --> 00:21:10.420 rooted slang like Gamba and Luca survive the 00:21:10.420 --> 00:21:13.680 transition to a cashless society? Or does a nation's 00:21:13.680 --> 00:21:16.200 unique financial vocabulary inevitably disappear 00:21:16.200 --> 00:21:18.559 when the physical cash that inspired it ceases 00:21:18.559 --> 00:21:20.940 to exist? Will the words vanish when the coins 00:21:20.940 --> 00:21:23.640 do? That is a truly fascinating thought to leave 00:21:23.640 --> 00:21:25.740 you with. Thank you for joining us on this deep 00:21:25.740 --> 00:21:28.240 dive. Keep your curiosity alive. Keep looking 00:21:28.240 --> 00:21:30.240 closely at the ordinary objects in your pocket. 00:21:30.420 --> 00:21:32.460 And we will be back soon to unpack the next stack 00:21:32.460 --> 00:21:32.960 of sources.