Project to eliminate the three zeros from banknotes in Colombia

Analysts affirm that the measure is a step to reduce cash in the economy, it would facilitate commercial transactions among the different economic agents, and the Banco de la República would assume the cost of production of the new denominations of coins and banknotes.

The project to eliminate the three zeros from banknotes in Colombia will be submitted to Congress on March 16. This is at least the fourth attempt to carry out this type of monetary reform.

In terms of costs, the National Association of Financial Institutions -Anif-, in 2001, estimated that giving the green light to the project would cost 50,000 million pesos. However, in 2011 it was estimated that the cost of replacing banknotes and coins would be 220,000 million pesos. Today, Sergio Clavijo, president of Anif, together with Alejandro Vera, vice president, calculate that the figure could be around 300,000 million pesos; which corresponds to 0.003 % of the GDP.

“Inflation levels close to the target range, have caused the debate on the elimination of the three zeros to be presented”

The inflation levels close to the target range, have caused the debate on the elimination of the three zeros to arise. For the entity, this would simplify conversions and comparisons with the same number of digits against currencies such as the dollar and the euro, and some of the region’s currencies (real, sol, etc.). In addition, it facilitates commercial transactions between different economic agents, there would be lower electronic storage costs and it would make accounting and budgeting simpler.

“The idea of eliminating three zeros from the Colombian currency is very good, it will make our lives easier, it will simplify the accounting of companies and now that we have more foreign tourists, it will also facilitate the exchange of currencies,” said the Minister of Finance, Mauricio Cardenas in a video of the ministry.

The attorney general of the nation, Néstor Humberto Martínez, returned to the subject of eliminating the three zeros from the Colombian peso, which would reduce the operational costs of companies, facilitate the monetary management of the economy and with which “the old peso, the one that is locked up and is the product of criminal activities, loses its liberating power”.

“Let’s recognize that there is a subway economy, that there is a monetization of crime in coves. Why don’t we make a change from the peso to the new peso, to reduce the operational costs of companies, to facilitate the entire monetary management of the economy,” said Martinez.

As published in El Espectador, for Martinez there must be a consensus between the financial sector, the State and society so that illicit money does not enter the formal economy. “We expropriate the illicit wealth accumulated by hundreds of criminal gangs, which are the ones that are affecting citizen security, the ones that are expropriating peace in the post-conflict territories,” he said.

Several analysts approve of the measure, as is the case of Francisco Azuero, former Vice Minister of Finance and professor at the Universidad de los Andes, who said in La República that “the country was in arrears to make this decision. The costs must be assumed as an investment. Thanks to the new bills, only the word thousand would have to be erased, so the cost of reprinting would be absorbed”.

Santiago Perdomo, president of Colpatria, for his part says that removing the three zeros is a step to reduce cash in the economy. “It should be changed in six months and hopefully it will be explicit that the old bills would lose their purchasing power to make people change them,” he says in the same media.

What would the elimination of zeros mean?

Although the elimination of the three zeros from the Colombian peso could facilitate the management of people’s finances, the change of denomination would generate, in the short term, a small inflationary effect, caused by the latent risk that prices, especially retail prices, would tend to round up.

“We believe that although some upward effects could materialize, albeit slight, related to the rounding of prices, these would be in any case “one off” effects that would not alter inflationary expectations or the structural mechanisms that determine price formation”, explains Jonathan Malagón, vice president of Asobancaria, in La República.

According to Banco de la República’s report ” Currency Substitution in Colombia: Costs and Benefits”, economic agents would tend to raise the prices of their products in order to maintain their relative prices. Currency normalization would imply incurring certain costs, some of which would be assumed by Banco de la República. Four basic costs would be borne by the Central Bank: the costs of changing the current banknote plates, the costs of modifying the computer programs to make the accounts with the new monetary denomination, the educational campaign and the production of the new coins and banknotes.

From the point of view of Juan M. Vargas, author of the report, “among the costs to be assumed by the Central Bank, the most important is related to the production costs of the new denominations of coins and banknotes. However, when comparing these costs with those of the replacement of monetary species normally assumed by the Issuer, it was found that they are not excessive. The greatest costs that the standardization of the currency in Colombia will demand, due to the replacement of the monetary species, will be present in the production of the new metallic coins”.

Without currency substitution, these costs will be 1,844.9 million pesos per year for five years, while with currency normalization, the annual cost, during the next five years, will be 13,182 million pesos.

Source: Actualize