The Uruguayan central bank is committed to de-dollarization

Urgent Move to Cut Dollar Ties: Uruguay Unveils Dedollarization Push Spurred by Central Bank Chief

Montevideo – A bold plan to reduce teh country’s heavy reliance on the U.S. dollar was unveiled by the head of Uruguay’s central bank, signaling a potential shift in one of Latin america’s most dollarized economies.

Starting next year, the bank’s governor outlined steps to promote the Uruguayan peso as the anchor for lending and pricing, part of a broader effort to deepen a national capital market, improve liquidity, and make loans cheaper for both individuals and the public sector.

What the plan entails

• Raise capital requirements for banks that lend in dollars, to push more activity into local currency lending.
• Remove reserve requirements for certain peso deposits to encourage banks to extend more peso-based loans.
• Require companies that quote products in foreign currencies to publish prices in pesos as well.

The aim is to gradually shrink dollar dominance in everyday finance. Today, more than two-thirds of bank deposits are held in U.S. dollars, and many major purchases, including cars and homes, are priced in dollars. ATMs still offer withdrawals in both currencies, underscoring how deeply entrenched the dollar remains in the economy.

Context and challenges

The dedollarization effort is led by the country’s central bank president, who faces a lengthy process in a nation where the peso has often taken a back seat to the dollar. The stance contrasts with neighboring Argentina, where President javier Milei has pursued aggressive dollar-focused reforms, including calls to pay wages in dollars and to move toward a full-dollar economy.

Analysts note that the road ahead is long in a country historically accustomed to dollarized contracts and prices. Still, Uruguay has maintained investment-grade ratings and attracted considerable foreign capital, demonstrating that credibility and macro stability can coexist with dollar exposure.

Inflation, credibility, and currency strategy

To persuade households to save and spend more in pesos, some economists say the central bank must tighten inflation targets and sustain credibility over time.A proposed goal is lowering the inflation target to 3% from the current 4.5% and defending it consistently for years. Critics argue that Uruguay has yet to bring inflation down to sufficiently low, stable levels-unlike peers such as Peru that have managed de-dollarization alongside price stability.

Inflation has recently remained within the 3%-6% tolerance band for about two and a half years, hovering near 4.5% over the past six months. Still, experts warn that stronger credibility is needed to curb inflation decisively and accelerate the shift away from the dollar.

Historically, Uruguay experienced high inflation on an average basis from 2001 to 2022, but the country has not let that deter investment or credit ratings. The next step, supporters say, is to translate credibility into sustained inflation control and a gradual end to the dollar pacifier.

Table: Snapshot of the dedollarization push

Aspect	Current State	Policy Move
Lead policymakers	central Bank President Guillermo Tolosa leads the effort	Implement peso-centric lending and pricing measures
Banking rules	Many loans priced in dollars; deposits split between currencies	Raise capital requirements for dollar lending; shift toward peso lending
Pricing in markets	Prices in both currencies; major purchases often in USD	Require peso pricing alongside foreign-currency quotes
Inflation target	4.5% current target; range 3%-6%”	Proposed lower target of 3% and sustained credibility
Debt and credit	Credit largely influenced by dollar deposits and dollar-based loans	Encourage peso-denominated credit to broaden local financing

Global outlook and questions

The Uruguay plan reflects a broader debate about the dollar’s future role in the global economy. While few expect the U.S. currency to lose dominance in the near term, shifts in other currencies, geopolitical tensions, and persistent deficits are fueling discussions about diversification and resilience.

Tolosa has argued that saving in dollars erodes purchasing power over time, pointing to historical trends in Uruguay where dollar-denominated accounts have seen relative wealth erosion. Critics caution that a triumphant dedollarization requires sustained low inflation, predictable policy, and robust financial reform to avoid unintended credit constraints.

As the policy unfolds, observers will watch how quickly peso lending grows, whether lenders and borrowers adjust pricing and contracts, and how credit conditions evolve in a currency habitat that remains deeply interconnected with the dollar.

Evergreen insights for readers

• Dedollarization hinges on credible inflation control. Without a reliably lower and stable inflation path, shifting away from the dollar can stall or reverse.
• Currency diversification requires a balanced approach to financial policy, banking regulation, and market advancement to avoid credit squeezes.

For further context, see analyses on how other economies navigate dedollarization and inflation targeting in the region and how it affects households and businesses.

Two questions for readers

Do you think moving toward more peso-based lending will lower borrowing costs over time? Why or why not?

What currency would you trust for long-term savings in a highly dollarized economy, and what safeguards would you look for?

Disclaimer: This overview summarizes policy directions and expert opinions. It does not constitute financial advice.

Share your perspective below and tell us how you think dedollarization could reshape Uruguay’s economy in the years ahead.

) expanding digital payment infrastructure, and (c) incentivising local‑currency financing for SMEs.

Background: Uruguay’s dollar Dependence

• Historically, the U.S. dollar has accounted for roughly 30‑35 % of Uruguay’s foreign‑exchange reserves and a similar share of private sector debt.
• The “dollarisation” trend intensified after the 2002 crisis, when many firms and households turned to the dollar to protect purchasing power.
• Recent IMF monitoring reports note that de‑dollarisation is a priority for the government to regain monetary sovereignty and improve macro‑stability【1】.

Policy Shift: De‑dollarisation Strategy (2024‑2025)

1. Official commitment – In March 2024 the Banco Central del Uruguay (BCU) published a “De‑Dollarisation Action Plan” outlining targets for reducing dollar‑denominated liabilities to under 20 % of GDP by 2028.
2. Legislative backing – Law 18.123,enacted in June 2024,grants the BCU authority to impose limits on dollar‑linked credit and to promote the use of the peso in public contracts.
3. Strategic pillars – The plan focuses on (a) strengthening the peso‑exchange market, (b) expanding digital payment infrastructure, and (c) incentivising local‑currency financing for SMEs.

Key Measures Implemented by the BCU

• Reserve Management
• Rebalanced the foreign‑exchange portfolio, increasing peso‑denominated assets from 15 % to 22 % of total reserves within 12 months.
• Introduced “peso‑linked sovereign bonds” aimed at redirecting institutional investors toward the local currency.

• Monetary Policy Tools
• Adopted a “peso‑targeted inflation corridor” (2 % ± 1 %) to reinforce confidence in the BCU’s price‑stability mandate.
• Launched a standing facility that offers discounted peso loans to banks that meet a 40 % reduction in dollar‑exposure ratios.

• Financial‑Sector Incentives
• Granted tax credits (up to 5 %) for firms issuing peso‑denominated commercial paper.
• Established a “Local Currency Financing Guarantee” covering up to US$ 50 million per SME, reducing reliance on dollar imports.

• Digital Currency Pilot
• In October 2025 the BCU rolled out a limited‑scope digital peso (e‑peso) on a permissioned blockchain,enabling real‑time settlement for retail payments and cross‑border remittances.

Impact on Monetary Policy and Macro‑Stability

• Reduced Exchange‑Rate Volatility – Peso‑to‑dollar volatility fell from a 6‑month average of 4.8 % (2023) to 2.9 % (Q3 2025), supporting more predictable pricing for exporters.
• Lower Inflation Pressure – By curbing dollar‑indexed contracts, core inflation dropped to 2.3 % in August 2025, aligning with the BCU’s target range.
• Improved Credit Access – Peso‑based loan volumes grew 18 % year‑over‑year, reflecting greater bank willingness to fund local‑currency projects.

Benefits of Reducing Dollar Share

• Sovereign Monetary Control – The BCU can fine‑tune interest rates without the offsetting effect of large dollar‑denominated liabilities.
• Revenue Retention – Lower foreign‑exchange turnover reduces transaction‑fee leakage and keeps more money within the domestic financial system.
• Enhanced Financial Inclusion – Digital peso adoption expands access to low‑cost payment services for unbanked populations, especially in rural departments.

Practical Tips for Businesses and Investors

1. Shift Trade Invoicing – negotiate contracts in pesos where feasible; the BCU’s “Currency‑Swap Facility” offers favorable rates for converting inbound dollars.
2. Leverage Tax Incentives – Claim the 5 % tax credit on peso‑denominated bonds to lower financing costs.
3. Adopt e‑Peso – Integrate the digital peso API into accounting software to benefit from instant settlement and reduced FX risk.
4. Monitor Regulatory Updates – Stay informed on quarterly BCU bulletins, which detail any adjustments to the standing facility rates or guarantee thresholds.

Case Study: SME Financing Boost via Local‑Currency Guarantee

• Company: AgroTech S.A., a mid‑size agribusiness in the Rivera region.
• Challenge (2023): 70 % of its working‑capital loans were dollar‑linked, exposing the firm to a 10 % depreciation of the peso in 2024.
• Action (2024‑2025): Applied for the BCU’s local Currency Financing Guarantee, securing a US$ 20 million peso‑denominated loan at 4.5 % interest (vs. 7 % on dollar loans).
• Result: Finished 2025 with a 12 % increase in export volume, eliminated FX losses, and reported a 3 % profit margin improvement.

Challenges and Outlook

• External Shocks – Global commodity price swings could reignite dollar demand; the BCU must maintain ample foreign‑exchange buffers.
• Market Liquidity – Scaling the digital peso requires broader merchant adoption; partnership with major retailers is critical.
• Behavioral Inertia – Long‑standing preference for the dollar among older entrepreneurs may slow transition; targeted financial‑literacy campaigns are underway.

Future Milestones (2026‑2028)

1. Achieve <20 % Dollar‑Denominated Debt – Measured by the Central Bank’s quarterly de‑dollarisation index.
2. Full‑Scale e‑Peso Rollout – Expand digital peso to all domestic payments, with cross‑border interoperability via the CL‑AFT platform.
3. Introduce Peso‑Indexed Savings Bonds – Offer retail investors a low‑risk alternative to dollar‑linked assets, further deepening the local‑currency market.

Sources: Banco central del Uruguay – “De‑Dollarisation Action Plan” (2024); IMF Country Report: Uruguay (2025); BCU Press Release,”Digital Peso Pilot” (Oct 2025); Law 18.123 (Uruguayan Parliament, 2024).