The foundation of Villa Imperial de Carlos V occurred after the discovery of rich silver veins in the mountains of Potosí, in present-day Bolivia. The discovery was made by native miners and Spanish explorers in the early 1540s, but it was not until October 4, 1545, that the settlement was officially established. This location soon became one of the richest silver mining centers in the world during the Spanish colonial period. The immense wealth derived from silver mining attracted a large influx of settlers and miners, and the town quickly grew in size and importance.

Potosí soon became the site of large-scale mining operations, with the installation of numerous mining technologies such as the patio process to extract silver. The settlement was officially named to honor Charles V, highlighting the significance of the Spanish crown's interests in the Americas. The population of Villa Imperial de Carlos V swelled as fortune seekers from Spain and other regions arrived, seeking to make a fortune in silver.

The growth of Potosí had profound effects on the region, leading to the establishment of an extensive trade network and cultural exchanges between indigenous peoples, Europeans, and enslaved Africans. As one of the most populous cities in the world in the late 16th century, Potosí became a symbol of the wealth and power generated by colonial exploitation.