5 Escudos – Chile

In 1971, Chile's currency situation was deeply intertwined with the radical economic policies of President Salvador Allende's Unidad Popular government, elected in 1970. The administration pursued a "Chilean Road to Socialism," which involved massive state intervention, including the nationalization of key industries—most notably the copper mines—and significant expansion of social spending. To finance this agenda and stimulate demand, the government dramatically increased the money supply, while also implementing extensive price controls and raising wages. This combination created powerful inflationary pressures, as a surge in consumer demand chased a supply of goods that was constrained by production bottlenecks and growing business uncertainty.

Externally, the currency faced severe strain. The nationalization of the U.S.-owned copper companies, without compensation deemed adequate by the U.S. government, led to an international financial blockade. Chile's access to foreign credit and loans from international institutions and private banks was severely restricted, crippling its ability to finance imports or support the peso. Consequently, the country's foreign reserves dwindled rapidly. The fixed exchange rate, maintained by the government, became increasingly overvalued, creating a thriving black market for U.S. dollars where the peso traded at a fraction of its official value. This overvaluation further discouraged exports (aside from state-controlled copper) and made vital imports prohibitively expensive for the state.

By the end of 1971, the underlying imbalances were becoming starkly apparent. While initial wage hikes boosted popular consumption, the economy was overheating. The expansionary fiscal and monetary policies, combined with the external financial stranglehold and a growing budget deficit, set the stage for the hyperinflation and severe goods shortages that would cripple the Chilean economy in the following years. The currency situation of 1971 thus represented the first act of a profound economic crisis, where political objectives collided with economic realities and external pressure, eroding the value of the peso and destabilizing the national economy.