WEBVTT 00:00:00.000 --> 00:00:02.040 I want you to imagine waking up tomorrow morning, 00:00:02.359 --> 00:00:05.000 grabbing your phone and logging into your bank 00:00:05.000 --> 00:00:08.039 account. Always a stressful moment. Right. But 00:00:08.039 --> 00:00:10.759 this time, it's worse. Yeah. You look at your 00:00:10.759 --> 00:00:13.519 life savings and the numbers look, well, completely 00:00:13.519 --> 00:00:17.140 different. Oh, wow. Yeah. The bank has just replaced 00:00:17.140 --> 00:00:19.820 your money with a so -called new version of your 00:00:19.820 --> 00:00:22.899 currency and the exchange rate. One of these 00:00:22.899 --> 00:00:26.559 new coins equals exactly 1 ,000 of your old ones. 00:00:26.679 --> 00:00:30.359 Just poof. Just poof. Three zeros, entirely wiped 00:00:30.359 --> 00:00:32.659 off the ledger. Now imagine you put your head 00:00:32.659 --> 00:00:35.200 down, you diligently rebuild your savings, and 00:00:35.200 --> 00:00:38.119 then, less than two decades later, the exact 00:00:38.119 --> 00:00:40.600 same thing happens all over again. That is just 00:00:40.600 --> 00:00:42.600 brutal. It sounds like a total nightmare, right? 00:00:42.920 --> 00:00:46.299 But for the citizens of Uruguay, erasing three 00:00:46.299 --> 00:00:48.140 zeros off their bank accounts was, I mean, it 00:00:48.140 --> 00:00:51.140 was basically just a Tuesday in 1975, and then 00:00:51.140 --> 00:00:54.140 again in 1993. It's just the ultimate financial 00:00:54.140 --> 00:00:57.179 whiplash. Seriously, we are talking about a complete 00:00:57.179 --> 00:00:59.859 erasure of zeros twice in a single generation 00:00:59.859 --> 00:01:03.640 and it fundamentally rewrites You know how you 00:01:03.640 --> 00:01:06.379 interact with the world around you you plan Exactly 00:01:06.379 --> 00:01:09.219 how you plan your future and even how you perceive 00:01:09.219 --> 00:01:12.480 the actual physical cash you carry in your pocket 00:01:12.480 --> 00:01:15.319 Okay, let's unpack this because for this deep 00:01:15.319 --> 00:01:18.920 dive. We are looking at the fascinating volatile 00:01:18.920 --> 00:01:22.159 and honestly deeply human story of the Uruguayan 00:01:22.159 --> 00:01:24.879 peso. And to understand the chaos, we have to 00:01:24.879 --> 00:01:28.140 figure out what the baseline of normal actually 00:01:28.140 --> 00:01:30.629 used to be. Right, where did they start? Because 00:01:30.629 --> 00:01:32.730 looking through our sources, Uruguay actually 00:01:32.730 --> 00:01:36.250 achieved this supreme monetary stability way 00:01:36.250 --> 00:01:39.390 back in 1896. Which is a long time ago. Yeah, 00:01:39.430 --> 00:01:41.269 they were on the gold standard. These were incredibly 00:01:41.269 --> 00:01:44.890 solid. But obviously, that didn't last. So how 00:01:44.890 --> 00:01:48.109 do we get from a rigid, totally stable, gold 00:01:48.109 --> 00:01:51.469 -backed economy to, well... mathematically slashing 00:01:51.469 --> 00:01:53.349 bank accounts. Well, we really have to look at 00:01:53.349 --> 00:01:55.390 the mechanics of the gold standard itself. OK. 00:01:55.450 --> 00:01:57.769 And more importantly, why it is just so vulnerable 00:01:57.769 --> 00:02:01.629 to external shocks. So in 1896, tying the Uruguayan 00:02:01.629 --> 00:02:04.150 peso to gold meant the money supply was strictly 00:02:04.150 --> 00:02:06.549 limited. By the actual gold. Right. Limited by 00:02:06.549 --> 00:02:08.270 the physical gold reserves sitting right there 00:02:08.270 --> 00:02:11.409 in the central bank's vault. It enforces discipline. 00:02:11.610 --> 00:02:14.090 Because you can't just print more. Exactly. A 00:02:14.090 --> 00:02:16.729 government cannot just print money to pay off 00:02:16.729 --> 00:02:20.990 its debts. Anyone holding a peso has the theoretical 00:02:20.990 --> 00:02:23.629 right to exchange it for a set amount of actual 00:02:23.629 --> 00:02:25.490 gold. Right. The money is just a stand -in for 00:02:25.490 --> 00:02:28.150 the metal. Yes. But that entire system requires 00:02:28.150 --> 00:02:31.289 a relatively peaceful, globally integrated world. 00:02:31.610 --> 00:02:34.490 A world where trade and gold flow freely across 00:02:34.490 --> 00:02:36.930 borders. Which effectively ended the exact moment 00:02:36.930 --> 00:02:39.530 World War I broke out. Exactly. The global trade 00:02:39.530 --> 00:02:42.699 networks just fractured. Yeah. major powers suspended 00:02:42.699 --> 00:02:44.879 the gold standard, they hoarded their gold to 00:02:44.879 --> 00:02:47.849 fund their war efforts, and Uruguay... You know, 00:02:47.889 --> 00:02:50.169 it did not exist in a vacuum. No country does. 00:02:50.449 --> 00:02:53.430 Right. Its economy was heavily dependent on exporting 00:02:53.430 --> 00:02:55.750 agricultural products to Europe. Like beef and 00:02:55.750 --> 00:02:58.150 wool, right? Yes. So when global markets seize 00:02:58.150 --> 00:03:00.909 up like that, and then later when World War II 00:03:00.909 --> 00:03:03.330 completely upends international trade routes 00:03:03.330 --> 00:03:05.650 all over again. This is just shock after shock. 00:03:05.810 --> 00:03:08.250 It is. And maintaining a rigid gold standard 00:03:08.250 --> 00:03:10.930 during all that becomes literally suffocating 00:03:10.930 --> 00:03:13.310 for a domestic economy. So without that strict 00:03:13.310 --> 00:03:15.689 leash of the gold standard, what actually happened? 00:03:15.879 --> 00:03:18.319 Well, by the post -war period, Uruguay shifted. 00:03:18.599 --> 00:03:21.379 Like a lot of Latin American nations, they moved 00:03:21.379 --> 00:03:23.939 toward import substitution, industrialization. 00:03:24.180 --> 00:03:26.259 Which basically means making things at home instead 00:03:26.259 --> 00:03:28.620 of buying them from abroad. Exactly. They were 00:03:28.620 --> 00:03:30.819 trying to produce everything domestically, but 00:03:30.819 --> 00:03:33.020 funding all those brand new domestic industries 00:03:33.020 --> 00:03:35.479 required massive capital. Right. The economic 00:03:35.479 --> 00:03:38.000 difficulties really compounded, and the government 00:03:38.000 --> 00:03:40.520 began expanding the money supply to cover its 00:03:40.520 --> 00:03:42.699 growing deficits. Just printing the money they 00:03:42.699 --> 00:03:45.180 needed. Yeah. And this produced an inflation 00:03:45.180 --> 00:03:48.669 that became severely serious after 1965. Wow. 00:03:49.030 --> 00:03:53.009 It raged right into the 1970s. The value of their 00:03:53.009 --> 00:03:55.449 currency at the time, the peso manoda national, 00:03:55.710 --> 00:03:58.129 it simply plummeted. Leading to that radical 00:03:58.129 --> 00:04:00.289 mathematical surgery I mentioned earlier. Yes. 00:04:00.490 --> 00:04:03.750 Because in 1975, the government officially replaces 00:04:03.750 --> 00:04:06.469 that old peso with the nuevo peso, or the new 00:04:06.469 --> 00:04:10.069 peso, at a rate of one new peso for 1 ,000 old 00:04:10.069 --> 00:04:12.550 ones. Just slicing off the zeros. It is basically 00:04:12.550 --> 00:04:15.169 a reverse stock split, but applied to your actual 00:04:15.169 --> 00:04:18.139 life savings. Right. But looking at the sources, 00:04:18.240 --> 00:04:20.779 it doesn't actually fix the root cause, does 00:04:20.779 --> 00:04:22.959 it? No, it doesn't. Because they had to do it 00:04:22.959 --> 00:04:27.480 all over again by 1993. The Nuevo peso was then 00:04:27.480 --> 00:04:30.459 replaced by today's currency, the peso Uruguayo. 00:04:30.800 --> 00:04:33.860 At another 1 to 1 ,000 ratio. It's wild. If you 00:04:33.860 --> 00:04:37.319 have to chop off three zeros twice in 18 years, 00:04:37.550 --> 00:04:40.370 Doesn't the physical currency just become a symbol 00:04:40.370 --> 00:04:43.410 of anxiety? You're essentially holding a melting 00:04:43.410 --> 00:04:45.970 ice cube in your wallet. What's fascinating here 00:04:45.970 --> 00:04:49.189 is that these massive devaluations were not just, 00:04:49.189 --> 00:04:51.269 you know, macro economic adjustments happening 00:04:51.269 --> 00:04:53.490 quietly on a central bank spreadsheet somewhere. 00:04:53.829 --> 00:04:55.649 Right. Real people were feeling this. Absolutely. 00:04:55.769 --> 00:04:58.149 There were profound psychological shocks to the 00:04:58.149 --> 00:05:00.490 public. I can imagine. You mentioned a reverse 00:05:00.490 --> 00:05:03.069 stock split. In corporate finance, a reverse 00:05:03.069 --> 00:05:05.670 split theoretically preserves your overall equity 00:05:05.670 --> 00:05:09.339 value. but in a hyperinflationary environment. 00:05:09.920 --> 00:05:12.019 When the government lops off three zeros, it 00:05:12.019 --> 00:05:14.300 is essentially institutionalizing the fact that 00:05:14.300 --> 00:05:16.300 your purchasing power has already completely 00:05:16.300 --> 00:05:18.519 evaporated. Damage is already done. Exactly. 00:05:18.759 --> 00:05:20.939 It absolutely becomes a source of chronic anxiety. 00:05:21.379 --> 00:05:23.839 It completely fractures the public's trust in 00:05:23.839 --> 00:05:26.639 the domestic money as a reliable store of value. 00:05:26.879 --> 00:05:28.980 Because you literally can't trust it. Right. 00:05:29.199 --> 00:05:32.180 And that psychological fracture forces the entire 00:05:32.180 --> 00:05:35.420 population to invent entirely new ways to just 00:05:35.420 --> 00:05:38.000 survive the volatility. Which brings us to how 00:05:38.000 --> 00:05:40.819 everyday Uruguayans actually adapted their behavior. 00:05:41.519 --> 00:05:43.120 Because if you know the earthquake is going to 00:05:43.120 --> 00:05:45.699 keep happening, you have to find solid ground 00:05:45.699 --> 00:05:48.300 somewhere. You do. The sources highlight this 00:05:48.300 --> 00:05:51.000 uniquely Uruguayan phrase that I think perfectly 00:05:51.000 --> 00:05:54.220 captures this collective mindset. Atraso Cambiario. 00:05:54.519 --> 00:05:58.540 Ah, yes. Atraso Cambiario. It translates roughly 00:05:58.540 --> 00:06:02.009 to... The exchange rate is running late. Running 00:06:02.009 --> 00:06:04.009 late. That's such an interesting way to phrase 00:06:04.009 --> 00:06:06.689 it. Think about the deeply ingrained psychology 00:06:06.689 --> 00:06:09.870 embedded right in that phrase. OK. When the peso 00:06:09.870 --> 00:06:12.410 actually shows some strength against foreign 00:06:12.410 --> 00:06:15.490 currencies, the public, they don't view it as 00:06:15.490 --> 00:06:18.189 a new era of economic stability. They don't trust 00:06:18.189 --> 00:06:20.370 the good news. Not at all. They view it as an 00:06:20.370 --> 00:06:22.790 artificial delay. They're perpetually waiting 00:06:22.790 --> 00:06:24.990 for the other shoe to drop, just assuming the 00:06:24.990 --> 00:06:27.850 currency will inevitably devalue again. And because 00:06:27.850 --> 00:06:29.959 they are constantly waiting for that shoe to 00:06:29.959 --> 00:06:33.519 drop, they develop coping mechanisms. And the 00:06:33.519 --> 00:06:36.319 most obvious one detailed in our sources is dollarization. 00:06:36.579 --> 00:06:39.879 Yes, very common. Uruguayans just started pricing 00:06:39.879 --> 00:06:43.180 all their major long -term transactions in U 00:06:43.180 --> 00:06:46.259 .S. dollars. We're talking real estate. cars, 00:06:46.939 --> 00:06:50.240 even the salaries of corporate executives. The 00:06:50.240 --> 00:06:53.279 local peso is basically relegated to buying groceries 00:06:53.279 --> 00:06:57.180 or paying for a taxi. The local currency handles 00:06:57.180 --> 00:07:00.160 the immediate low value friction of daily life. 00:07:00.439 --> 00:07:03.339 but the U .S. dollar becomes the heavy anchor 00:07:03.339 --> 00:07:05.819 for everything else. But a sovereign government 00:07:05.819 --> 00:07:08.160 obviously wants its own citizens using its own 00:07:08.160 --> 00:07:10.079 currency, right? Of course they do. And during 00:07:10.079 --> 00:07:12.660 the military rule in the late 1970s and early 00:07:12.660 --> 00:07:15.060 1980s, the government tried to force a sense 00:07:15.060 --> 00:07:17.600 of predictability back into the system. Using 00:07:17.600 --> 00:07:20.040 that mechanism called the tablita. Yes, the tablita. 00:07:20.199 --> 00:07:22.060 This piece of history is just wild to me. It 00:07:22.060 --> 00:07:23.879 was literally a daily table published by the 00:07:23.879 --> 00:07:26.040 government predicting the exact future value 00:07:26.040 --> 00:07:28.519 of the dollar. A schedule of the exchange rate. 00:07:28.740 --> 00:07:31.850 Right. Our sources call it a crawling peg. But 00:07:31.850 --> 00:07:33.610 how does that actually work mechanically? I mean, 00:07:33.910 --> 00:07:36.569 how can a government just declare what the exchange 00:07:36.569 --> 00:07:38.870 rate will be next month? Well, a crawling peg 00:07:38.870 --> 00:07:41.930 is a system where the central bank commits to 00:07:41.930 --> 00:07:45.350 a fixed exchange rate, but one that gradually 00:07:45.350 --> 00:07:48.990 adjusts or crawls at a pre -announced, pre -determined 00:07:48.990 --> 00:07:51.449 rate. OK, so it's not totally fixed. It moves, 00:07:51.610 --> 00:07:55.300 but predictably. Exactly. By publishing the tablita, 00:07:55.439 --> 00:07:57.459 the government was attempting to anchor public 00:07:57.459 --> 00:07:59.379 expectations. They were essentially saying to 00:07:59.379 --> 00:08:02.220 the public, look, we acknowledge there is inflation 00:08:02.220 --> 00:08:05.379 going on, but we promise the currency will only 00:08:05.379 --> 00:08:08.500 devalue by this precise, very small percentage 00:08:08.500 --> 00:08:11.019 every single day. But declaring it on a piece 00:08:11.019 --> 00:08:13.569 of paper doesn't make it real. How do they actually 00:08:13.569 --> 00:08:15.790 enforce that rate in the open market? Through 00:08:15.790 --> 00:08:18.470 constant heavy intervention. Right. To maintain 00:08:18.470 --> 00:08:20.629 this illusion of control, the central bank has 00:08:20.629 --> 00:08:23.310 to constantly buy and sell foreign reserves on 00:08:23.310 --> 00:08:25.810 the open market. So there's bleeding cash to 00:08:25.810 --> 00:08:28.519 prop it up? Yes. If the natural market demand 00:08:28.519 --> 00:08:31.100 pushes the dollar higher than the tablita allows, 00:08:31.699 --> 00:08:34.080 the central bank has to sell its own U .S. dollars. 00:08:34.139 --> 00:08:36.919 To flood the market. Right. To flood the market 00:08:36.919 --> 00:08:39.039 and artificially bring the price back down to 00:08:39.039 --> 00:08:41.000 match their published table. It reminds me of 00:08:41.000 --> 00:08:43.279 a weather forecast that absolutely promises you 00:08:43.279 --> 00:08:45.679 sunshine. That's a great way to look at it. The 00:08:45.679 --> 00:08:47.659 government is basically guaranteeing the financial 00:08:47.659 --> 00:08:51.000 weather. So everybody plans their picnic. Everybody 00:08:51.000 --> 00:08:53.460 leaves their umbrellas at home. Citizens take 00:08:53.460 --> 00:08:56.940 out massive loans denominated in U .S. dollars 00:08:56.940 --> 00:08:59.820 because the Tablita assures them exactly how 00:08:59.820 --> 00:09:01.860 many pesos they will need to pay it back over 00:09:01.860 --> 00:09:04.019 the next five years. They feel totally safe. 00:09:04.200 --> 00:09:07.000 Yeah. And then right before the picnic, a hurricane 00:09:07.000 --> 00:09:10.500 hits. A devastating hurricane. In November 1982, 00:09:11.120 --> 00:09:13.720 the central bank simply ran out of foreign reserve. 00:09:13.799 --> 00:09:15.860 They just ran out of money. They could no longer 00:09:15.860 --> 00:09:18.259 afford to intervene in the market to artificially 00:09:18.259 --> 00:09:20.799 prop up the peso. They were bleeding capital. 00:09:20.940 --> 00:09:23.059 So what did they do? They had to abandon the 00:09:23.059 --> 00:09:25.559 peg entirely and let the currency float to its 00:09:25.559 --> 00:09:29.200 true market value. Or, as the phrase went locally, 00:09:29.720 --> 00:09:32.960 the tableta was broken. Wow. The peso's value 00:09:32.960 --> 00:09:36.019 collapsed instantly. Meaning? Anyone who took 00:09:36.019 --> 00:09:38.779 out a loan in U .S. dollars, assuming their peso 00:09:38.779 --> 00:09:40.799 -denominated salary would cover it based on that 00:09:40.799 --> 00:09:43.279 government table, was suddenly ruined. Yes. Their 00:09:43.279 --> 00:09:45.820 debt literally doubled or tripled overnight while 00:09:45.820 --> 00:09:48.139 their income stayed exactly the same. It caused 00:09:48.139 --> 00:09:50.620 catastrophic bankruptcies all across the country. 00:09:50.779 --> 00:09:52.860 And the real tragedy of the cycle is that the 00:09:52.860 --> 00:09:55.259 weather forecast just kept getting it wrong. 00:09:55.320 --> 00:09:57.379 Because it happened again later, right? It did. 00:09:57.679 --> 00:10:00.440 The sources detail a very similar dynamic two 00:10:00.440 --> 00:10:04.639 decades later. By 2002, amid a regional banking 00:10:04.639 --> 00:10:07.179 contagion spreading from neighboring Argentina 00:10:07.179 --> 00:10:10.759 and a massive domestic budget deficit, the year 00:10:10.759 --> 00:10:12.879 -going currency was allowed to float again. And 00:10:12.879 --> 00:10:15.940 it tanked. It lost almost 50 % of its value in 00:10:15.940 --> 00:10:18.200 just a couple of weeks. Half its value in weeks. 00:10:18.200 --> 00:10:21.259 Exactly. More bankruptcies, more shattered trust. 00:10:21.379 --> 00:10:24.139 It creates this deeply ingrained trauma. Yeah. 00:10:24.299 --> 00:10:26.440 But then the narrative in our sources takes a 00:10:26.440 --> 00:10:29.080 really unexpected turn. Yes, the rebound. Right. 00:10:29.460 --> 00:10:32.389 Between 2004 and... In 2008, Uruguay experienced 00:10:32.389 --> 00:10:35.710 a phenomenon that completely defied that atrozocambiario 00:10:35.710 --> 00:10:38.570 mindset you mentioned. The peso actually appreciated 00:10:38.570 --> 00:10:40.850 in nominal terms against the U .S. dollar. It 00:10:40.850 --> 00:10:43.210 did. It went from about 30 pesos to the dollar, 00:10:43.389 --> 00:10:46.769 down to 24. Getting stronger. And by 2008, it 00:10:46.769 --> 00:10:50.149 reached 19 pesos to the U .S. dollar. It essentially 00:10:50.149 --> 00:10:52.289 clawed back more than half of its loss from that 00:10:52.289 --> 00:10:55.440 2002 crisis. I would assume people were throwing 00:10:55.440 --> 00:10:57.399 parades in the streets. The currency is finally 00:10:57.399 --> 00:10:59.519 strong. You would think so. But the sources note 00:10:59.519 --> 00:11:01.879 this appreciation actually triggered protests. 00:11:02.429 --> 00:11:04.830 from the industrial sector. And I have to admit, 00:11:04.870 --> 00:11:07.629 I was completely confused by this. Why would 00:11:07.629 --> 00:11:10.490 the industrial sector protest their own national 00:11:10.490 --> 00:11:13.049 currency getting stronger? Wouldn't a stronger 00:11:13.049 --> 00:11:15.710 peso mean the country as a whole is wealthier? 00:11:15.809 --> 00:11:17.809 I know. It seems incredibly counterintuitive 00:11:17.809 --> 00:11:20.389 at first. Yeah. Until you look closely at the 00:11:20.389 --> 00:11:23.169 mechanics of global trade and specifically a 00:11:23.169 --> 00:11:25.909 dynamic related to export competitiveness. OK, 00:11:26.009 --> 00:11:28.690 walk me through it. Imagine you are a Uruguayan 00:11:28.690 --> 00:11:31.559 manufacturer. You are exporting leather goods 00:11:31.559 --> 00:11:34.279 or software to Europe or North America. Makes 00:11:34.279 --> 00:11:37.159 sense. You're operating costs. So paying your 00:11:37.159 --> 00:11:39.860 local factory workers, paying your property taxes, 00:11:40.000 --> 00:11:42.700 keeping the lights on, all those bills are denominated 00:11:42.700 --> 00:11:44.940 in Uruguayan pesos. Right, because my business 00:11:44.940 --> 00:11:48.200 is in Uruguay. Exactly. But your revenue, the 00:11:48.200 --> 00:11:51.100 money you make, comes in from abroad in US dollars 00:11:51.100 --> 00:11:54.659 or euros. Ah, I see the friction here. If the 00:11:54.659 --> 00:11:58.070 peso gets stronger, Those foreign dollars I earn 00:11:58.070 --> 00:12:00.990 suddenly buy fewer pesos when I bring them home 00:12:00.990 --> 00:12:03.649 to pay my workers. Precisely. Your revenue is 00:12:03.649 --> 00:12:06.529 suddenly worth less locally. So to maintain your 00:12:06.529 --> 00:12:09.029 profit margins in pesos, you have to raise the 00:12:09.029 --> 00:12:11.450 price of your goods in the global market. Which 00:12:11.450 --> 00:12:13.750 makes my leather goods more expensive than everyone 00:12:13.750 --> 00:12:16.629 else's. Yes. Suddenly your exports are much more 00:12:16.629 --> 00:12:18.789 expensive for the rest of the world to buy. You 00:12:18.789 --> 00:12:20.769 lose your competitive edge to other countries 00:12:20.769 --> 00:12:23.350 that have weaker currencies. Wow. So the exporters 00:12:23.350 --> 00:12:26.720 protest? They act... demand the central bank 00:12:26.720 --> 00:12:29.620 intervene to artificially weaken the peso so 00:12:29.620 --> 00:12:31.740 they can stay competitive globally. That is an 00:12:31.740 --> 00:12:34.000 impossible balancing act. It really is. They 00:12:34.000 --> 00:12:36.200 need a stable strong exchange rate to protect 00:12:36.200 --> 00:12:38.580 everyday citizens from inflation, but a weak 00:12:38.580 --> 00:12:40.820 enough exchange rate to keep their domestic industries 00:12:40.820 --> 00:12:43.320 viable on the world stage. And the sources say 00:12:43.320 --> 00:12:46.940 by July 2020, the peso had depreciated again 00:12:46.940 --> 00:12:50.259 to over 40 to the dollar. So the cycle just continues. 00:12:50.360 --> 00:12:53.200 It does. So if the exporter is protesting the 00:12:53.200 --> 00:12:55.899 exchange rate, and the everyday citizen is fleeing 00:12:55.899 --> 00:12:57.919 to the U .S. dollar to protect their savings, 00:12:58.899 --> 00:13:01.919 what happens to the actual physical peso in their 00:13:01.919 --> 00:13:04.820 pocket? The physical cash? Yeah. Here's where 00:13:04.820 --> 00:13:07.299 it gets really interesting for me. Because the 00:13:07.299 --> 00:13:09.600 macroeconomic volatility doesn't just stay on 00:13:09.600 --> 00:13:12.679 abstract spreadsheets. It directly morphs the 00:13:12.679 --> 00:13:15.909 physical cash people carry. It really does. The 00:13:15.909 --> 00:13:18.570 tactile reality of the peso serves as almost 00:13:18.570 --> 00:13:20.990 an archaeological record of the inflation we've 00:13:20.990 --> 00:13:23.649 been discussing. Like fossils of inflation. Exactly. 00:13:24.129 --> 00:13:26.889 As inflation systematically erodes purchasing 00:13:26.889 --> 00:13:29.809 power over time, the central bank is forced to 00:13:29.809 --> 00:13:32.509 rethink the entire physical medium of exchange. 00:13:33.110 --> 00:13:35.370 Because printing secure banknotes is surprisingly 00:13:35.370 --> 00:13:37.470 expensive. With all the security features, right? 00:13:37.750 --> 00:13:40.470 It involves special polymer threads, complex 00:13:40.470 --> 00:13:43.590 watermarks, and high quality ink. When the actual 00:13:43.529 --> 00:13:46.690 face value of a five or ten peso note drops below 00:13:46.690 --> 00:13:48.909 the physical cost to manufacture that piece of 00:13:48.909 --> 00:13:50.929 paper. The government is literally losing money 00:13:50.929 --> 00:13:53.370 printing money. Precisely. Maintaining it as 00:13:53.370 --> 00:13:55.710 a paper bill becomes an economic liability for 00:13:55.710 --> 00:13:59.330 the state. So in 2003 and 2004, the government 00:13:59.330 --> 00:14:02.509 replaced those five and ten peso bills with coins. 00:14:02.590 --> 00:14:05.210 They did. Which completely shifts the physical 00:14:05.210 --> 00:14:08.450 sensation of wealth for the average person. Your 00:14:08.450 --> 00:14:12.100 wallet literally gets heavier. But it buys significantly 00:14:12.100 --> 00:14:14.960 less at the grocery store. It's a heavy reminder 00:14:14.960 --> 00:14:17.779 So I have to ask does turning bills into heavy 00:14:17.779 --> 00:14:20.580 chunks of metal essentially signal to the public 00:14:20.580 --> 00:14:23.399 that the government admits the currency has permanently 00:14:23.399 --> 00:14:25.700 lost its prestige. If we connect this to the 00:14:25.700 --> 00:14:28.159 bigger picture, replacing high denomination notes 00:14:28.159 --> 00:14:32.059 with bimetallic coins is indeed a universal economic 00:14:32.059 --> 00:14:34.720 white flag regarding inflation. A white flag. 00:14:34.759 --> 00:14:37.440 I love that description. It is a tacit admission 00:14:37.440 --> 00:14:39.460 that the lost purchasing power is permanent. 00:14:39.700 --> 00:14:41.700 You aren't going to need a 10 peso note to buy 00:14:41.700 --> 00:14:44.139 a car ever again. Right. However, when a government 00:14:44.139 --> 00:14:46.460 goes through this forced transition, it also 00:14:46.460 --> 00:14:48.990 provides them with a blank canvas. an opportunity 00:14:48.990 --> 00:14:51.309 to redefine the nation's cultural priorities 00:14:51.309 --> 00:14:53.269 right there on the money. And looking at the 00:14:53.269 --> 00:14:55.429 source material, they took full advantage of 00:14:55.429 --> 00:14:58.610 that blank canvas. In 2011, they introduced these 00:14:58.610 --> 00:15:01.289 vibrant new coin designs. Very unique designs. 00:15:01.570 --> 00:15:04.450 We are talking brass -plated steel and bimetallic 00:15:04.450 --> 00:15:07.230 coins. But instead of just stamping the faces 00:15:07.230 --> 00:15:09.870 of historical politicians on them, they featured 00:15:09.870 --> 00:15:13.389 local wildlife. Which is quite rare. It is. The 00:15:13.389 --> 00:15:16.429 one peso coin has an armadillo. The 2 peso has 00:15:16.429 --> 00:15:19.789 a capybara. The 5 peso features the greater Rhea, 00:15:19.929 --> 00:15:22.389 which is like a large bird. And the 10 peso coin 00:15:22.389 --> 00:15:25.070 shows a puma standing proudly in front of a rising 00:15:25.070 --> 00:15:28.460 sun. It reflects a very modern shift in national 00:15:28.460 --> 00:15:31.679 branding, moving away from purely militaristic 00:15:31.679 --> 00:15:34.480 or political iconography and moving toward environmental 00:15:34.480 --> 00:15:36.620 heritage and biodiversity. Though they certainly 00:15:36.620 --> 00:15:38.700 didn't abandon their history entirely. No, not 00:15:38.700 --> 00:15:41.440 entirely. The national hero, Jose Artigas, remains 00:15:41.440 --> 00:15:44.019 incredibly prominent, particularly on that 10 00:15:44.019 --> 00:15:46.820 peso bimetallic coin. That specific 10 peso coin 00:15:46.820 --> 00:15:49.360 is substantial. It has this aluminum bronze center 00:15:49.360 --> 00:15:52.279 inside a stainless steel ring. It looks serious. 00:15:52.399 --> 00:15:55.279 It does. And on it, alongside Artigas, is his 00:15:55.279 --> 00:15:58.519 six - in this incredibly powerful quote, Sean 00:15:58.519 --> 00:16:01.299 Los Orientales Tenio Los Trados Como Valientes. 00:16:01.639 --> 00:16:03.899 May the Orientals be as enlightened as they are 00:16:03.899 --> 00:16:06.639 brave. Having that specific message physically 00:16:06.639 --> 00:16:08.899 stamped into the metal that changes hands every 00:16:08.899 --> 00:16:12.039 single day, it feels like an attempt to anchor 00:16:12.039 --> 00:16:14.759 the national identity, even when the financial 00:16:14.759 --> 00:16:17.059 numbers are constantly drifting. It is an anchor. 00:16:17.389 --> 00:16:19.750 And we see that continuous evolution on the paper 00:16:19.750 --> 00:16:22.250 money as well. Oh, right, the banknotes. The 00:16:22.250 --> 00:16:24.710 sources point out a fascinating, very subtle 00:16:24.710 --> 00:16:27.889 update made in 2014 and 2015 to the banknote 00:16:27.889 --> 00:16:30.669 series. The bills themselves feature prominent 00:16:30.669 --> 00:16:34.269 cultural figures, educators, artists, writers 00:16:34.269 --> 00:16:37.669 like the poet Wannadie I. Barberou. OK. The central 00:16:37.669 --> 00:16:40.570 bank kept those core portraits, but they removed 00:16:40.570 --> 00:16:43.350 the vertical word Uruguay from the left side 00:16:43.350 --> 00:16:45.929 of the bills. It is a minor design tweak, but 00:16:45.929 --> 00:16:48.320 it shows the physical currency isn't just a static 00:16:48.320 --> 00:16:51.759 museum artifact. It is a living, breathing interface 00:16:51.759 --> 00:16:54.480 between the state and the citizen. Always evolving. 00:16:54.919 --> 00:16:57.440 But if physical cash is heavy with all this inflationary 00:16:57.440 --> 00:17:00.059 history, how does a country truly escape the 00:17:00.059 --> 00:17:01.879 cycle? I mean, they can't just keep dropping 00:17:01.879 --> 00:17:05.779 zeros or minting heavier. wildlife coins forever. 00:17:05.980 --> 00:17:07.920 No, they can't. They have to move toward entirely 00:17:07.920 --> 00:17:10.299 invisible systemic solutions. Which brings us 00:17:10.299 --> 00:17:14.079 to the digital horizons. Yes. This is where Uruguay's 00:17:14.079 --> 00:17:16.859 position on the global stage becomes highly unexpected. 00:17:17.559 --> 00:17:20.259 They are not merely reacting to financial crises 00:17:20.259 --> 00:17:23.900 anymore. They are actively pioneering the architecture 00:17:23.900 --> 00:17:27.160 of future money. I was absolutely amazed to read 00:17:27.160 --> 00:17:30.140 this part of the sources. Uruguay is in a very 00:17:30.140 --> 00:17:34.049 small, notable club of jurisdictions worldwide 00:17:34.049 --> 00:17:37.230 that are at an advanced stage of considering 00:17:37.230 --> 00:17:39.930 a general purpose central bank digital currency 00:17:39.930 --> 00:17:43.529 or CBDC. Very advanced. They're running neck 00:17:43.529 --> 00:17:45.970 and neck with Sweden. Sweden and Uruguay are 00:17:45.970 --> 00:17:48.210 both cited for the advanced stage of their work 00:17:48.210 --> 00:17:50.269 and the sheer amount of public information their 00:17:50.269 --> 00:17:52.029 central banks have made available. It's a big 00:17:52.029 --> 00:17:54.849 deal. It is. But let's clarify this because CBDC 00:17:54.849 --> 00:17:57.289 is a massive buzzword in economics right now. 00:17:57.309 --> 00:17:59.950 Right. How is a central bank digital currency 00:18:00.089 --> 00:18:02.650 actually different from, say, the digital pesos 00:18:02.650 --> 00:18:05.089 I already see when I log into my standard commercial 00:18:05.089 --> 00:18:07.490 banking app on my phone. This raises an important 00:18:07.490 --> 00:18:09.809 question because the distinction is mechanically 00:18:09.809 --> 00:18:12.289 crucial. OK. The money you see in your commercial 00:18:12.289 --> 00:18:15.549 banking app is essentially an IOU from that specific 00:18:15.549 --> 00:18:17.789 private bank. Right. The bank owes me that money. 00:18:18.210 --> 00:18:21.170 Yes. If the bank fails, you have to rely on deposit 00:18:21.170 --> 00:18:25.970 insurance. A CBDC, however, is a direct digital 00:18:25.970 --> 00:18:28.920 liability of the central bank itself. OK, so 00:18:28.920 --> 00:18:31.359 it cuts out the middleman. Exactly. It is the 00:18:31.359 --> 00:18:33.819 exact digital equivalent of holding that physical 00:18:33.819 --> 00:18:36.779 10 peso coin with the puma on it, but native 00:18:36.779 --> 00:18:39.420 to the Internet. It strips away the intermediary 00:18:39.420 --> 00:18:41.660 risk of the commercial banking sector entirely. 00:18:42.240 --> 00:18:45.240 So you are holding digital money directly with 00:18:45.240 --> 00:18:48.029 the government. Completely bypassing the traditional 00:18:48.029 --> 00:18:51.069 commercial bank accounts. Correct. And for a 00:18:51.069 --> 00:18:53.670 country traumatized by systemic banking crises, 00:18:53.869 --> 00:18:56.970 like the one in 2002 where commercial banks literally 00:18:56.970 --> 00:19:00.049 froze or failed, giving citizens a way to hold 00:19:00.049 --> 00:19:02.289 digital money directly with the central bank 00:19:02.289 --> 00:19:05.410 offers a radical new layer of trust. And transparency, 00:19:05.430 --> 00:19:08.109 I imagine? Yes. It also gives the central bank 00:19:08.109 --> 00:19:10.910 programmable tools for monetary policy, allowing 00:19:10.910 --> 00:19:12.970 them to track the velocity of money and distribute 00:19:12.970 --> 00:19:15.490 liquidity instantly without waiting for commercial 00:19:15.400 --> 00:19:18.079 banks to process the transactions. That's incredibly 00:19:18.079 --> 00:19:20.480 futuristic, but they haven't just waited for 00:19:20.480 --> 00:19:22.440 cutting -edge blockchain technology to solve 00:19:22.440 --> 00:19:24.460 their problems either. No, they've been very 00:19:24.460 --> 00:19:26.940 pragmatic. They've engineered alternative economic 00:19:26.940 --> 00:19:30.140 units to mathematically bypass the peso's volatility 00:19:30.140 --> 00:19:32.940 altogether. The source has mentioned two specific 00:19:32.940 --> 00:19:36.759 ones, the unit add previsional, or UP, which 00:19:36.759 --> 00:19:40.140 is a specific currency account unit, and the 00:19:40.140 --> 00:19:44.109 unit add indexata, or UI. Yes, the UI. The unit 00:19:44.109 --> 00:19:46.390 add index data is arguably the most impactful 00:19:46.390 --> 00:19:48.970 financial innovation for everyday life in Uruguay. 00:19:49.230 --> 00:19:51.829 Really? More than the digital currency? For everyday 00:19:51.829 --> 00:19:54.609 planning, absolutely. It is an abstract unit 00:19:54.609 --> 00:19:57.710 of account tied directly to consumer price indicators. 00:19:58.369 --> 00:20:01.289 Its underlying value in standard pesos adjusts 00:20:01.289 --> 00:20:03.529 daily based on inflation. I have to admit, when 00:20:03.529 --> 00:20:05.410 I first read about these units, I was pretty 00:20:05.410 --> 00:20:08.029 skeptical. Why is that? Well, are these units 00:20:08.029 --> 00:20:10.450 just mathematical band -aids? Like a complex 00:20:10.450 --> 00:20:12.950 accounting trick to avoid fixing the actual root 00:20:12.950 --> 00:20:14.809 problem of the peso? That's a common initial 00:20:14.809 --> 00:20:17.049 reaction, but they are far more than a band -aid. 00:20:17.230 --> 00:20:19.549 They act as a pragmatic firewall. A firewall. 00:20:19.710 --> 00:20:21.549 Okay, explain that. Let's look at how the UI 00:20:21.549 --> 00:20:24.009 functions mechanically in a real -world scenario, 00:20:24.329 --> 00:20:26.859 like buying a house. If you take out a 20 -year 00:20:26.859 --> 00:20:30.000 mortgage in standard pesos and inflation suddenly 00:20:30.000 --> 00:20:32.740 spikes to 20 percent, the commercial bank loses 00:20:32.740 --> 00:20:35.880 massive amounts of real value because the pesos 00:20:35.880 --> 00:20:37.859 you are paying them back with are suddenly worth 00:20:37.859 --> 00:20:40.200 much less. Right. The bank takes the hit. Yes. 00:20:40.759 --> 00:20:43.420 So to compensate for that immense risk, banks 00:20:43.420 --> 00:20:45.559 would have to charge exorbitant interest rates 00:20:45.559 --> 00:20:48.299 from the start, making loans completely impossible 00:20:48.299 --> 00:20:51.069 for average citizens to afford. And on the flip 00:20:51.069 --> 00:20:53.869 side, if I take out that mortgage in U .S. dollars, 00:20:54.009 --> 00:20:55.970 which we established earlier as the common coping 00:20:55.970 --> 00:20:58.769 mechanism for big purchases, and the local peso 00:20:58.769 --> 00:21:01.849 drops in value, suddenly my monthly payment costs 00:21:01.849 --> 00:21:04.210 me twice as many pesos out of my monthly salary. 00:21:04.509 --> 00:21:06.829 Exactly. I default. I go bankrupt, just like 00:21:06.829 --> 00:21:09.150 the people who trusted the tablita back in 1982. 00:21:09.289 --> 00:21:11.609 You've got it. Both traditional options carry 00:21:11.609 --> 00:21:14.170 catastrophic systemic risk. So what does the 00:21:14.170 --> 00:21:17.930 UI do? Enter the UI. If your mortgage is denominated 00:21:17.930 --> 00:21:21.029 in unit days index add -as, the principal debt 00:21:21.029 --> 00:21:23.690 adjusts precisely with domestic inflation. Oh, 00:21:23.710 --> 00:21:27.069 wow. Yes. If the cost of living goes up 5%, the 00:21:27.069 --> 00:21:29.890 peso value of your loan goes up 5%. So it scales 00:21:29.890 --> 00:21:32.930 automatically. Exactly. The bank is completely 00:21:32.930 --> 00:21:35.329 protected from inflation, so they can offer a 00:21:35.329 --> 00:21:37.950 reasonable low interest rate. And the borrower? 00:21:38.170 --> 00:21:40.609 The borrower is protected from sudden exchange 00:21:40.609 --> 00:21:43.369 rate shocks. Because their debt is tied to local 00:21:43.369 --> 00:21:45.950 consumer prices, not the wild whims of the U 00:21:45.950 --> 00:21:48.730 .S. dollar, it mathematically neutralizes the 00:21:48.730 --> 00:21:50.950 anxiety of the exchange rate for long -term planning. 00:21:51.329 --> 00:21:53.710 That is genuinely brilliant. So what does this 00:21:53.710 --> 00:21:56.059 all mean? When you look at the entire arc of 00:21:56.059 --> 00:21:58.160 these sources from the rigid stability of the 00:21:58.160 --> 00:22:02.420 1896 gold standard through the trauma of slashing 00:22:02.420 --> 00:22:05.160 zeros in the 70s and 90s, the heartbreak of the 00:22:05.160 --> 00:22:08.339 broken tablita all the way to beautiful bi -metallic 00:22:08.339 --> 00:22:10.599 wildlife coins and cutting edge central bank 00:22:10.599 --> 00:22:13.259 digital currencies. The story of the Uruguayan 00:22:13.259 --> 00:22:15.460 peso is really a master class in adaptation. 00:22:15.900 --> 00:22:19.279 It truly is. It reveals that an economy is at 00:22:19.279 --> 00:22:22.099 its core entirely reliant on a social contract 00:22:22.099 --> 00:22:24.880 of trust. Yes, trust. Shatters whether it is 00:22:24.880 --> 00:22:26.940 fractured by the ripple effects of global conflicts 00:22:26.940 --> 00:22:29.559 disrupting trade or by a domestic crawling peg 00:22:29.559 --> 00:22:31.839 that completely fails to predict the future. 00:22:32.299 --> 00:22:35.200 Citizens do not just give up. No. Human creativity 00:22:35.200 --> 00:22:37.900 kicks in to bridge the gap. Exactly. They survive. 00:22:38.240 --> 00:22:40.500 They survive by pricing their homes in U .S. 00:22:41.119 --> 00:22:44.200 dollars. They mentally calculate the atraso cambiaro 00:22:44.200 --> 00:22:46.839 every time they read the financial news. They 00:22:46.839 --> 00:22:49.119 track their net worth in abstract index units 00:22:49.119 --> 00:22:52.480 like the UI just to feel safe taking out a mortgage. 00:22:52.700 --> 00:22:54.940 And our sources note that the government's current 00:22:54.940 --> 00:22:57.279 strategy of allowing the currency to float naturally 00:22:57.279 --> 00:23:00.660 is aimed at ultimately de -dollarizing the economy. 00:23:01.200 --> 00:23:03.440 They are hoping that avoiding artificial pegs 00:23:03.440 --> 00:23:05.740 will slowly encourage the public to naturally 00:23:05.740 --> 00:23:08.519 trust the peso once more. Which leaves you, the 00:23:08.519 --> 00:23:10.539 listener, with a really lingering thought to 00:23:10.539 --> 00:23:13.690 ponder long after this deep dive ends. Think 00:23:13.690 --> 00:23:16.190 back to that opening scenario, waking up to find 00:23:16.190 --> 00:23:18.690 your savings mathematically slashed. A nightmare. 00:23:18.910 --> 00:23:21.009 Once a population has spent multiple generations 00:23:21.009 --> 00:23:23.490 surviving by mentally converting their daily 00:23:23.490 --> 00:23:26.170 lives, their aspirations, and their safety into 00:23:26.170 --> 00:23:29.230 a foreign currency. Well, is it truly possible 00:23:29.230 --> 00:23:31.829 for any government policy to force them to de 00:23:31.829 --> 00:23:34.430 -dollarize their own minds? That is the million 00:23:34.430 --> 00:23:36.430 dollar question, or I should say the million 00:23:36.430 --> 00:23:38.869 peso question. Right. Can trust, once it has 00:23:38.869 --> 00:23:40.730 been broken so fundamentally and replaced by 00:23:40.730 --> 00:23:43.400 a foreign safety net, ever be fully repatriated.