Cuba : economic issues

Topics: Inflation, Currency, Money Pages: 5 (1248 words) Published: October 28, 2013
INTRUDUCTION:
In economics, the term currency can refer either to a particular currency, for example the BD, or to the coins and banknotes of a particular currency, which comprise the physical aspects of a nation's money supply. The other part of a nation's money supply consists of money deposited in banks, ownership of which can be transferred by means of cheques or other forms of money transfer. Deposit money and currency are money in the sense that both are acceptable as a means of exchange, but money need not necessarily be currency.

Historically, money in the form of currency has predominated. Usually (gold or silver) coins of intrinsic value commensurate with the monetary unit (commodity money), have been the norm. By contrast, modern currency is intrinsically worthless. The prevalence of one type of currency over another in commodity money systems has arisen, usually when a government designates through decrees, that only particular monetary units shall be accepted in payment.

Countries currency problems arise from many situations, main issue is the wars in that country. Also if the country experience high inflation, or if they take a loans that they can’t repaid it.

History of the currency:
The Colombian peso has been the currency of colombia replaced the real in 1837 at a rate of 1 peso= 8 reals and was initially subdivided into 8 reals. In 1847, Colombia decimalized and the peso was subdivided into ten reales, each of 10 decimos de reales. in 1871, Colombia went on to the gold standard, pegging the peso to the French franc at a rate of 1 peso = 5 francs. This peg only lasted until 1886. Between 1907 and 1914, coins were issued denominated in "peso p/m", equal to paper pesos. In 1910, the Junta de Conversion began issuing paper money and, in 1915, a new paper currency was introduced, the peso oro. This was equal to the coinage peso and replaced the old peso notes at a rate of 100 old paper pesos = 1 peso oro. In 1931, when the U.K. left the gold standard, Colombia shifted its peg to the U.S. dollar, at a rate of 1.05 pesos = 1 dollar, a slight devaluation from its previous peg. Although it never appeared on coins, Colombia's paper money continued to be issued denominated in peso oro until 1993, when the word oro was dropped. Since 2001, the Colombian senate has debated whether to redenominate the currency by introducing a new peso worth 1000 old pesos.

The historical exchange rates of the Columbian peso:-

The following table shows the exchange rate of 1$ to COP

COP
year

1,140.96
2000

1,426.04
2001

1,756.23
2002

2,087.90
2003

2,299.63
2004

2,275.89
2005

2,856.8
2006

2,013.8
2007

2,302.9
2008 (est)

The characteristics of the Colombian economy:
Colombia has a free market economy with major commercial and investments ties to the United States. In 1990 the administration of President César Gaviria Trujillo intiated liberalism policies with tariff reductions, financial deregulation, and privatization of stated- owned enterprises and adoption of a more liberal foreign exchange rate. This made almost all sectors to become open to foreign investment except agricultural products which remained protected.  The administration idea behind keeping agricultural products away from foreign investments was that the country should import agricultural products in which it was not competitive like maize, wheat, cotton and soybeans and exports the ones in which it had an advantage like fruits , flowers and coffee beans. Until 1997 Colombia had enjoyed a fairly stable economy . the first five years of liberalization were characterized by high economic growth rates . Between the year 1994 and 1998 the Ernesto Samper administration emphasized social welfare policies which targeted Colombia's lower income population. The economy slowed, and by 1998 GDP growth was only 0.6%. In 1999, the country fell into its first recession since the Great...
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