The peso is the official currency of the Dominican Republic. The subunit of the peso is the centavo, which is 1/100th of a peso. The Dominican peso maintains a close relationship to the U.S. dollar, and the USD is used by the country as a reserve currency. To help the ailing Dominican economy, it has been deemed lawful for U.S. dollars and euro to be used in private transactions instead of the peso if both parties agree. This has been helpful to the Dominican economy by expanding tourism in the country.
The first peso was introduced by the Dominican Republic after gaining independence from Haiti in 1844. It replaced the old Haitian gourde at a rate of one-to-one. The original Dominican peso could be subdivided into 8 reales until the centavo was introduced in 1877, effectively decimalising the currency. A second, concurrent currency, the franco, was also used in the Dominican Republic alongside the peso from 1891 to 1897, and from 1905 to 1937, the official Dominican currency was the U.S. dollar, replacing the peso at an exchange rate of 5 pesos per dollar. In 1937, the peso oro was introduced on par with the U.S. dollar, which continued to be used concurrently through 1947.
The Dominican peso is issued by the Central Bank of the Dominican Republic. This central bank is a limited autonomous entity in the Financial and Monetary Administration. The Monetary Board is the controlling organization of both the Central Bank and the Superintendency of Banks. The Central Bank of the Dominican Republic was established in 1947 as an independent and decentralized bank. The power of the Central Bank was greatly enhanced in 1962, when it was authorized to maintain foreign exchange and credit conditions in the country. Today, the Central Bank is responsible for setting reserve requirements for commercial banks, imposing lending limits and issuing securities.
The monetary policy of the Dominican Republic since the 1990s has been to set the peso on a managed floating exchange regime. However, a banking crisis in 2003 caused the country to lose a full 21 percent of its GDP. Subsequent capital flight caused a sharp decline in value of the peso and high inflation ensued. An air of uncertainty still exists in speculation over the future of the peso even though increased tourism has resulted in the rebound of the value of the peso.