In our active daily lives, there are many things that we take for granted and rarely understand from an historical perspective. One of the more common items that falls into this category is currency.
Currencies do not just happen. Time and effort from a host of participants are necessary to bring it into being and manage it through time. There are generally three parts to this knowledge “puzzle”–the currency’s history, its forms of distribution, and its impact on the economy.
Part 1 – History
Every recognized currency has a specific international code of three letters and a type of “shorthand” symbol. The Nicaraguan Cordoba is assigned the code of “NIO” and is typically symbolized as “C$.” In 1912, recognition was bestowed upon the country’s founder, Francisco Hernández de Córdoba, when the Peso, the national currency at the time, was officially converted to the Cordoba.
At that time, one Cordoba was equivalent to 12.5 Pesos, and it had a 1:1 conversion rate with the U.S. Dollar on the foreign exchange market. The Peso had been in existence since 1878. Spanish coins had been legal tender before that time.
The U.S. Marines occupied Nicaragua from 1912 to 1933, but various dictatorships and revolutions led to economic strife and inflation in the decades following. As a result, a new ‘Second’ Cordoba was issued in 1988 that was equivalent to 1,000 original Cordobas. In 1991, a third Cordoba, known as the “Golden Córdoba” replaced this second version at a rate of 1 to 5,000,000. In today’s foreign exchange markets, roughly 24 Cordobas are equal to one U.S. Dollar.
If you wish to read more about currency charts, there are several websites on the Internet that can assist you with this task.
Part 2 – Forms of Distribution
The Cordoba is divided into 100 centavos. The first Cordoba currency distribution was a combination of coins and banknotes. Lesser valued coins were minted in bronze or copper/nickel alloys, while larger denominations were minted in silver. Over time, and as inflation became a factor, lesser valued metals like aluminum were used to replace higher valued metals.
When the second Cordoba was issued in 1988, no new coins accompanied its entry. New coins, however, were minted when the third Cordoba was distributed in 1991. The new banknotes also followed international conventions by placing famous people and landmarks on the sides of the newly printed notes. In 2009, the country was the first in the Americas to issue successfully “polymer banknotes,” designed to reduce counterfeiting and re-printing costs.
Part 3 – Impacts on the Economy
The Banco Central de Nicaragua is the central bank of the nation. It has the responsibility for issuing the national currency, managing its value in the international marketplace, and regulating inflation and prices within the domestic economy through its various policies.
The Cordoba’s value is primarily driven by agriculture, which accounts for 60% of the nation’s export activity, generating nearly $2 billion in trade revenue. Remittances from Nicaraguans living overseas add another $1 billion in foreign reserves on an annual basis.
The central bank started its operations in 1961. Inflation has been roughly 8% for the past few years, and GDP growth for 2012 is on a 3-4% target line.
This year marks the 100th anniversary of the Córdoba. Prospects for the future remain bright.
Tom Cleveland is a market analyst for Currency Publications, a group that writes about economics and the foreign exchange market.