Chilean Peso (CLP): Definition, How It Works, and Examples
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Summary:
The Banco Central de Chile (Banco) issues the Chilean peso (CLP), which is the country’s official currency. This article explores the history, significance, and current status of the CLP in international markets. Learn about its colloquial names, historical values, and the impact of the COVID-19 pandemic on its exchange rate. Discover why the CLP is a restricted currency and its exceptional currency swap agreement with China. This article also touches on the economic landscape of Chile, known for its stability and copper exports. Find out whether you can use CLP in other countries and get insights into its value against the U.S. dollar.
What is the Chilean peso (CLP)?
The central bank of Chile, Banco Central de Chile, is responsible for issuing the Chilean peso, which is the country’s official currency. On the foreign exchange markets, it goes by the code CLP.
To distinguish it from the US dollar and other currencies denominated in dollars that use the same sign, the peso’s symbol is $, which frequently comes before the letter CLP.
The Chilean peso subdivides into 100 centavos. As of March 27, 2022, $1 U.S. was worth 777.18 CLP.
Understanding the Chilean peso
Chileans refer to the Chilean peso (CLP) by numerous colloquial names. These names include quina for the 500 peso note, which was introduced in 1977, and gamba for the 100 peso note.
The Chilean peso is a limited currency, which means it may only be exchanged and used in Chile. This limitation affects overseas passengers but does not prevent them from trading on the currency exchanges.
There is one exception to the restriction: Chile has a currency exchange deal with China due to the importance of their trade relationship. These swaps are used to keep loan rates steady between trade nations.
CLP in the forex markets
The peso suffered a historic low period in March 2020 when the COVID-19 pandemic spooked traders in the currencies of emerging nations. The CLP fell to about 839 pesos per U.S. dollar, a drop of more than 20% on a year-over-year basis and its worst level historically. The central bank intervened with purchases of the peso to stabilize its price.
The peso recovered steadily in early 2022, moving from about 851.50 at the beginning of the year to 777.18 on March 27, 2022.
The CLP often deals with the US dollar (USD), the Canadian dollar (CAD), the Australian dollar (AUD), the euro (EUR), the British pound (GBP), and the Japanese yen (JPY) on the foreign exchange market. It also often deals with the Brazilian real (BRL).
History of the Chilean peso
The Chilean peso was introduced in 1817 and was then tied to the Spanish real. Though the 1,000-peso escudo replaced it between 1960 and 1975, it remains Chile’s currency. The peso is not pegged to any other currency.
The peso’s valuation has changed several times since its introduction. Until 1979, the central bank held the currency within a crawling band of exchange rate values. Between 1979 and 1982, the central bank pegged the peso to the U.S. dollar. Overvaluation of the peso due to the dollar peg and high interest rates produced a 1982 economic crisis due to rising debt. Associated inflation made centavo coins obsolete in 1984.
Between 1984 and 1999, the central bank used a crawling currency band mechanism to determine the value of the currency. Since then, the currency’s value has fluctuated freely, with the Chilean government occasionally intervening in markets to control severe volatility.
The currency’s value has been generally steady since, with the exception of steps taken by the central bank in response to certain occurrences. These included the 9/11 terrorist attacks in New York and a period of instability following Brazil’s turbulent 2002 electoral campaign.
During 2008 and 2011, the central bank also intervened to reduce the currency’s strength versus the US dollar. The currency plummeted sharply in 2015 due to market fears of a reduction in copper prices, although the central bank did not interfere at the time. The bank chose to act in 2020 after its currency fell drastically in response to the COVID-19 outbreak.
The Chilean economy
Chile was one of Latin America’s fastest-growing economies for decades. However, economic growth has slowed in recent years, showing long-standing issues of income inequality and a weakened middle class.
The COVID-19 epidemic aggravated the situation. The country’s economy declined by 6% in 2020, although it began to improve with the relaxation of COVID-related regulations. The nation’s officials responded forcefully to the outbreak by increasing social spending to alleviate financial strain on households. That, of course, increased the nation’s debt, at least momentarily.
According to projections, Chile’s economy will recover from the epidemic, with an estimated 12% GDP growth in 2021 and a slower but still respectable 2% growth in 2023.
Chile is the world’s top copper exporter. Additionally, it is the world’s fifth-largest wine exporter.
History of the Chilean peso
Historically, the term peso referred to a Spanish denomination known as the eight-real coin, which began to circulate in Chile in 1817. By 1851, the peso was worth five French francs but contained a lower amount of gold.
Early in the 1840s, a few private banks produced the first paper banknotes, which lasted until 1898. In 1881, the government introduced its first convertible paper currency. The Banco Central de Chile became the country’s only currency issuer in 1925.
Currency swap with China
Chile maintains strong diplomatic and commercial connections with China. In 2018, it joined China’s Belt and Road Initiative, a huge scheme to build infrastructure in countries that have or may have beneficial trade links with China. China has become Chile’s primary trading partner.
The connection isn’t without controversy. Chile’s trans-Pacific fiber optic cable project with a Japanese company was seen as a response to growing concerns about China’s political influence.
In any case, the currency swap deal between Chile and China has helped protect Chile’s economy against interest rate shocks that could harm its commerce. The amount of currency available through the swap was increased in 2020 to help Chile weather the economic effects of the pandemic.
How much is a Chilean peso to a U.S. dollar?
Over the past five years, the Chilean peso has ranged from 591.50 per US dollar in February 2018 to 859.20 in March 2020, ending on March 27, 2022. The COVID-19 pandemic impacted its value, but it has since rebounded and is expected to grow stronger in early 2022.
Remember, that is the official stated rate, right from the FX exchanges. The actual price a tourist to Chile receives from a bank or money exchange facility will include a 3% to 5% fee.
Travelers to Chile should be aware that the currency cannot be used outside of Chile. That implies Chilean pesos may only be obtained and used within the nation and must be exchanged for another currency before leaving.
Is the CLP fixed or floating?
The CLP has been a floating currency since 1999. In previous eras, it was pegged to the U.S. dollar or was controlled by a crawling band rate that limited its movements to a range set by the central bank.
Frequently asked questions
1. Can I use Chilean pesos outside of Chile?
No, Chilean pesos cannot be spent outside of Chile. The currency is restricted, meaning it can only be exchanged and used within the country.
2. Are there any exceptions to the Chilean peso restrictions?
There is one exception to the restriction: Chile has a currency swap agreement with China, allowing for stability in loan rates between the two nations. This exception is due to the significant trade relationship between Chile and China.
3. How did the COVID-19 pandemic impact the Chilean peso?
The COVID-19 pandemic led to a historic low period for the Chilean peso in March 2020. The currency’s value fell by more than 20% against the U.S. dollar. The central bank intervened by purchasing pesos to stabilize their price.
The bottom line
Chile’s status as a Latin American beacon of economic stability and growth has somewhat dimmed in the recent past. A series of demonstrations in 2019 and 2020 focused attention on the nation’s continuing problems of poverty and inequality.
Key takeaways
- The Banco Central de Chile (Banco) issues the Chilean peso (CLP), which is the country’s official currency.
- Colloquial names for different denominations, such as quina and gamba, add cultural significance.
- The CLP has been a floating currency since 1999, with occasional government intervention for stability.
- Chile, despite facing economic challenges, has one of Latin America’s most stable economies, driven by factors like copper exports.
- The currency swap agreement with China provides stability in loan rates and shields Chile from economic shocks.
The COVID-19 pandemic added to its problems, making the nation’s growing middle class vulnerable to its economic disruptions. Aggressive fiscal and monetary policy actions seemed to have worked, bringing the country back to pre-pandemic levels of growth and prosperity.
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