Functions of the Banco de la República^*

• Issue of Legal Tender. The currency issuing attribute, characteristic of the monetary sovereignty of the Nation, is exclusive to the Banco de la República and can not be delegated. This attribute has materialized, with the authorization of Congress, by means of various contracts.

• Credit Functions of the Banco de la República. Law 31 establishes precise conditions: it categorically prohibits the Issuer (of the legal currency) from offering credits and securities to private individuals and entities. Exception is made for temporary assistance credits to credit institutions with liquidity problems, in fulfillment of the Bank’s role as lender of last resort.

In regards to the tendering of credit by the Banco de la República to the Government, although the new regime does not prohibit it, it does establish very rigorous conditions for the concession of credit. In effect, it establishes that this sort of credit should be limited to instances of dire necessity and should be conceded only upon unanimous approval by the Board of Directors.

Nevertheless, it is important to point out that the Constitution left open the possibility for the Bank to continue acquiring Government bonds on the secondary market. In this fashion, it is not the Bank which directly finances the Government but individuals who have purchased these bonds.

• Banker of banks. As with any central bank, the Banco de la República plays the role

of banker to the banks. On one hand, it is the depository of the money allocated to it in fulfillment of the bank reserve requirement which serve to regulate the credit-issuing capacity of the banking system. This reserve, maintained under the tightest security, backs the liquidity of the banking system. On the other hand, as was already mentioned, the Banco de la República acts as the lender of last resort to credit institutions in the event of a temporary lack of liquidity caused by the massive withdrawal of deposits.

The Banco de la República also speeds up bank operations. An important tool for achieving this purposes is the "Clearing House". Since normally all financial institutions must keep deposits with the Banco de la República, the Clearing House allows the quick determination of the state of these deposits at the end of each day, after effecting the exchange of checks among institutions.

The management of the liquidity of the economy and the development of the Colombian financial system have led the Banco de la República to tend collaborative links with entities such as finance corporations, savings and loans and commercial financing companies, all of which must also maintain reserve requirements and to which the Bank also offers credit to solve problems of temporary lack of liquidity.

• Foreign Exchange Functions. Law 31 also attribute to the Bank the task of formulating exchange policy within the framework of the criteria and objectives set forth by the Congress of the Republic aimed at the regulation of foreign trade and the international exchange rate regime.

The external situation of the country directly affects monetary conditions. Therfeore, the Bank should participate in the drafting and definition of policy regarding the foreing exchange rate and the flow of international capital. Because of this, one of the Bank’s several functions is to organize and regulate the foreign exchange market and intervene in it with the purpose of defending the exchange rate, in order to regulate the conditions of the country’s borrowing abroad.

• Administration of International Reserves. It is the task of the Banco de la República to administer the country’s international reserves, including management, investment, safekeeping and disposal of reserve assets. Investment takes place principally by following the criteria of security and liquidity with the goal of facilitating national payments abroad.

The Bank, before all else, looks for security and stability in its investment and it endeavors to keep its reserves liquid in order to ensure seasonable payments to other countries

The international reserves are internationally accepted means of payment generated, among other means, by: i) The difference between income stemming from exports or sales abroad and expenditures made on imports or for purchases realized in the rest of the world; ii) The difference between income proceeding from foreign loans or investment and expenditures in capital payments, interest and retention of profits; and iii) The difference between drawings remitted by Colombian residing abroad and those remitted to them. The purpose of the international reserves is to service the need of both the Government and private individuals and businesses to make payments abroad.

The international reserves consist of freely convertible currencies, which means, these currencies can be legally exchanged for other currencies widely accepted in the international market, for gold or for Special Drawing Rights (SDR’s).

• Government Banker, Fiscal Agent and Trustee. The Banco de la República fulfills these duties by receiving funds in deposit from the Nation and public entities under the conditions established by the Board of Directors. Furthermore, the Banco de la República may act as fiscal agent in the negotiation of external and internal credits upon request of the Government and if such action is compatible with the goals of the Bank.
    
• Promoter of Scientific, Social and Cultural Development. The professional expertise and operating structure of the Bank has allowed it to simultaneously support the scientific, social and cultural development of the country through the creation of foundations designed to select, finance and otherwise stimulate investigations in the fields of sciences, technology, anthropology, archaeology, education, health and humanities. Moreover, the Bank has played a part in efforts to rescue and preserve the cultural patrimony as well as in efforts to stimulate its continued development through the creation and administration of libraries and specialized museum throughout the country. The Gold Museum (Museo de Oro) and the Luis Angel Arango Library are a nationally and internationally recognized part of the Banco de la República.
    
• The Board of Directors’ Report to the Congress. An innovation of considerable interest that was introduced by Law 31 was the obligation of the Board of Directors of the Bank to give a Report, by the mouth of its Chief Executive Officer, to the Congress. This Report would verse on the execution of the monetary, exchange and credit policies and would include an explanation of the general guidelines for arriving at such policies, an evaluation of achieved results in the past period and an exposition of the proposed objectives and goals for the subsequent period and in the medium term. Additionally, the Report should explain the administration policy and composition of the international reserves and the Bank’s current financial situation and prospects. What’s more Congress can request that the Bank provide reports as it sees fit if, in the course of the year, a substantive change in regards to the policies mentioned in the Report takes place. The Board of Directors is then required to give such additional reports.

These public reports, given by the Bank upon legislative request, undoubtedly represented a democratic advance that fosters a more transparent handling of those areas of policy encharged to the Issuer.

The Banco de la República underwent a marked reform in the restructuring of its functions. The number of departments and branches was cut throughout the country, consolidating some and eliminating others and the number of personnel was reduced to adapt the institution to the country’s new circumstances.

REFERENCES

The Bank
| Introduction | History, Mission and Functions |
| Organizational Diagram | Financial Statements |
| Notes and Coins | Fellowships |
| Foundations | General Information |