5 Pesos – Dominican Republic

In 2002, the Dominican Republic was navigating a period of relative monetary stability, but one underpinned by significant economic vulnerabilities. Following a severe banking crisis in 2003, the country had adopted a managed float exchange rate regime for its currency, the Dominican Peso (DOP). The Central Bank (Banco Central de la República Dominicana) actively intervened in the foreign exchange market to control volatility and maintain a stable, though not fixed, value against the US dollar. This policy aimed to foster confidence, control inflation, and support an economy heavily reliant on imports, tourism, and remittances.

However, this stability was fragile. The year 2002 was marked by growing fiscal and external imbalances. A large fiscal deficit, fueled by expansive public spending and subsidies to the struggling energy sector, was increasingly financed by the Central Bank. This practice of monetary expansion created persistent inflationary pressures and raised concerns about the sustainability of the peso's value. Furthermore, a widening current account deficit, driven by a high import bill and rising oil prices, put steady pressure on the country's foreign reserves.

Consequently, while the official exchange rate remained relatively stable around 16-17 pesos per US dollar throughout much of 2002, a parallel foreign exchange market existed, where the peso traded at a slight discount. This disparity signaled underlying market skepticism. The accumulating macroeconomic imbalances of 2002 set the stage for the severe financial crisis that would erupt the following year, when the country faced a massive banking collapse, a sharp devaluation of the peso, and a surge in inflation, revealing the precarity of the currency's apparent calm.