Peruvian Sol (PEN): What it is, How it Works, Example

What Is the Peruvian Sol (PEN)?

The Peruvian sol (PEN) is the national currency of Peru. It went into circulation in January 1991 under the name Nuevo Sol. Under a law that went into effect on Dec. 15, 2015, the name of the monetary unit was renamed Sol.

Understanding the PEN

As a Spanish colony, Peru used the escudo, peso, and real as its currency. Despite winning independence in 1821, it used the escudo until 1863, when its monetary system was decimalized and the sol was introduced. Massive inflation forced Peru to overhaul its currency in 1985 when it introduced the inti to replace the sol at a 1,000-to-1 ratio. Severe economic distress and bouts of hyperinflation required the government to scrap its currency again in 1991. The government introduced the Nuevo Sol, which was equal to one million inti.

Peru's political history illustrates the challenges of maintaining a stable currency. During the 1960s, democratically elected Fernando Belaúnde Terry undertook a system of economic liberalization, with an emphasis on exports. His efforts were stymied by the persistent threat of Cuba-inspired political uprisings. In 1968, General Juan Francisco Velasco Alvarado seized power and nationalized the fishmeal industry, along with several oil companies, banks, and mining firms.

In 1980, Peru returned to civilian rule following a new constitution. Belaúnde Terry regained the presidency on a platform of reversing the previous decade's financial mismanagement. However, his popularity quickly eroded due to high inflation, economic hardship, terrorism.

Peru’s economy fared better during much of the 21st century until the COVID-19 pandemic hit. The country had one of the best track records years on poverty reduction, and growth in foreign direct investment had increased demand for the Peruvian sol.

However, the recent pandemic has crushed the local economy. The country’s gross domestic product (GDP) fell 11.1% in 2020. With that, the poverty rate jumped 27%—up 6 percentage points. Public debt hit 35% of GDP and the economy is expected to remain below pre-pandemic levels for 2021, but ultimately stabilize.

Real-World Example of the PEN

The Central Reserve Bank of Peru issues the Peruvian sol in banknote denominations of 10, 20, 50, 100, and 200 soles. The currency is represented with the symbol S/. The Peruvian sol is subdivided into 100 céntimos. Coins circulate in denominations of S/5, S/2, and S/1, and 10, 20, and 50 céntimos.

Peru's top trading partners are China, the United States, Canada, Korea, and Switzerland. Its largest exports were copper, gold, oil, and zinc. According to World Bank data, Peru registered -11.14% GDP growth in 2020, with inflation of 1.82%.

As of August 2021, one U.S. dollar bought approximately 4.07 PEN.