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Friday, 30 March 2012 11:45

In olden times, value of goods was measured by making a comparison of the object to valuables of the place.     It can now be understood why our pre-Columbian ancestors used cacao as currency;  they considered chocolate made from cacao as a valuable, as they thought it was the drink of Gods.

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Even though, bartering was a way of trading until XX century, the use of cacao as exchange value dates all the way back to the rise of the Mayan civilization. The Xontle was the cacao’s monetary unit and was made up of 400 cacao almonds.

Spaniards introduced their coin, the Real, into the country. Although, cacao continued to be used at a exchange rate of 200 cacao almonds per Real.

First coins that circulated in our country were minted in Spain, until the first Mint House was finally founded in Guatemala in 1731. However, most commonly used coins during colonial times were  macacos or morlacos.

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The macacos were irregular shaped silver pieces; mostly minted in Peru or Mexico and they were cut with pliers; coins were engraved with columns of Hercules and have the inscription "Plus Ultra". When traded in large quantities, these coins were accepted by their weight rather than by their nominal value. Macacos continued in use after the Independence of Central American countries and on July 9th., 1856, they were established as legal tender.

 
el dinero3Farm tokens, known as “fichas de finca”, appeared at the same time as the macacos and these were tokens manufactured out of brass. Most of them were circular and they had differences depending on the issuing farm, name that was engraved on the coins. Farm tokens were used to pay farm workers in exchange for their work and they in turn would go to local stores to purchase their goods.
 
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Colonial monetary system did not change during the period of the Central American Federation. The silver peso, equivalent to 8 reales was used, though the first regional coin was minted to commemorate the Independence. The first changes occurred later when the government ordered the minting of national gold and silver coins. The silver pieces had an “R” engraved on them, which meant “Real” and the gold coins had an “E” engraved meaning “Escudo”.
 
First Monetary Law was decreed in 1883, under the presidency of doctor Rafael Zaldívar, adopting the Peso as monetary unit and the Spanish system of dividing the Peso into 8 reales was discarded;  at that time, decimal metric system was established and the Peso had the equivalence of 10 reales.     

First banknotes appeared in El Salvador at the end of the XIX century.  They played a very important role as change documents, as a measure unit of the value of goods and as a savings element.  Private banks authorized by the government were in charge of issuing banknotes.


el dinero5The Banco Internacional, founded in 1880, was the first bank to issue Salvadoran banknotes.  The bank was granted the exclusive right of issuing banknotes and they had to be received at the public sector agencies.   Later on, other banks were authorized as well:   Occidental, Salvadoreño and Agrícola Comercial.
 
Mint House was inaugurated on August 28th., 1892, under the Presidency of General Carlos Ezeta.  On October 1st.,  same year, Legislative Assembly, as a tribute to Christopher Columbus on IV Centennial of the Discovery of America, reformed the 1883 Monetary Law and changed name to our monetary unit from Peso to Colon.  At that time, exchange rate of the Colon was decreed at ¢2.00 per US Dollar.

 
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Second Monetary Law was decreed in 1919, establishing that all coins that were worn out would be taken out of circulation and cut or perforated pieces would not serve as legal tender.  No tokens or receipts were allowed in substitution of the currency.  Law would penalize this sort of infringement.  This law also established that the Ministry of Finance would have control of the monetary circulation.


 
Between 1920 and 1930, El Salvador was living under an era of economic prosperity.  Later, the world depression, low international coffee prices and lack of control in monetary system would bring the country to the greatest economic crisis ever experienced.

 
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Country did not have an institution that would assure the purchase power of currency, nor to oversee activities of the banks.  Due to this reason, Government decided to contract the services of an expert Englishman, Frederick Francis Joseph Powell, to analyze banking structures.     In his report, Mr. Powell concluded that banking system needed to organize a central bank in traditional way, to maintain and protect currency and credit activities and to have sole right to issue notes.   One of the main objectives was to assure the external value of the national currency, the Colon.

 
el dinero8By initiative of Executive Branch, on June 19th., 1934,  Legislative Assembly approved the Law for the Creation of the Central Reserve Bank of  El Salvador.   Its main role would be to control the volume of credit loans and demand of circulating currency, as well as sole right to issue notes.  Ever since the creation of the Central Reserve Bank, it was the only institution in charge of issuing notes.

 
Central Reserve Bank of El Salvador, on August 31st., 1934, issued its first line of banknotes in the history of El Salvador and denominations were one, five, ten, twenty-five and one hundred colones.  In 1955, was added another denomination, two colones banknote, and in 1979, was added the fifty colones banknote.  These banknotes were modified individually, changing their design and, in some cases, denominations were eliminated issuing new ones, but a new line of banknotes was never issued until 1997, when it was introduced a new banknote with a face value of two hundred colones.

 
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On January 1st., 2001, when Monetary Integration Law went into effect, the United States dollar was authorized as legal tender in El Salvador (Art. 3).   Law stated that both currencies,  dollar and colon  (Arts. 3 and 5), would circulate as legal tender, establishing that exchange rate is ¢8.75 per Dollar (Art. 1).

 
 
 
 
 

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More than 500 years have gone by since our ancestors used cacao as their currency, as a form of measuring the price of goods.              Throughout all these years, Salvadoran monetary system has evolved alongside the transformation of our economy, our society and the way we see the world during different phases of our history.      Nowadays, Salvadorans are modernizing, to progress together with the rest of the world towards new levels of human development and progress in all areas of life.

Texts from the children’s book "¿What is Money?" edited by Banco Central de Reserva de El Salvador in 2000..

Last Updated on Wednesday, 04 July 2012 12:41
 
Banco Central de Reserva de El Salvador
República de El Salvador, C. A
Alameda Juan Pablo II, entre 15 y 17 Av. Norte. Apartado Postal (106), San Salvador, El Salvador.
Tels. (503) 2281-8000; Fax. (503) 2281-8011.    E-mail: info@bcr.gob.sv