Reforms^*

1930. The Second Kemmerer Commission. By virtue of Law 82 of 1931, the makeup of the Board of Directors of the Banco was modified through the incorporation of representatives of the National Federation of Coffee Producers (Federación Nacional de Cafeteros) and the Chambers of Commerce as well as the formalization of the participation of the Minister of Finance. A foreign exchange control was put into place in order to regulate transactions with the rest of the world. In specific terms, the rate of exchange of the national currency for foreign currencies was regulated and a determination was made that any external payment must have the authorization of the Issuing Bank. These resolutions contributed to the intensification of Bank involvement as regulator of monetary operations both in the national currency and in foreign currencies.

In September of 1931, England dismantled the gold standard linked with the pound sterling, the then international currency of reference. To avoid a depletion of its gold reserves, the Government temporarily suspended trade with the metal and the conversion of currency into gold while establishing control of the transactions with the rest of the world. It was also determined that the Banco de la República should exercise a monopoly over the buying and selling of gold and foreign currency, functions related to the management of the country’s international reserves.

1949. The Grove Commission. In this year, the Government invited a delegation from the Federal Reserve of New York, headed by Daniel Grove, with the goal of realizing a diagnosis of the Colombian banking system. This commission recommended providing the Banco de la República with a greater number of tools to regulate the money supply and channel credit as incentive for economic development. As a result, the Board of Directors of the Banco de la República was empowered, with the favorable vote of the Minister of Finance, to: i) Fix shares of ordinary, special, developmental and emergency credits; ii) both fix and vary the discount and interest rates to loan, discount and rediscounting operations; and, iii) Set and alter the amount of the legally-stipulated reserve requirement for the banking system, among other functions.

Additionally, the life span of the Banco de la República was prolonged along with the exclusivity of its role as issuer of the national currency by the space of 20 years from July 20, 1953. The makeup of the Board of Directors was modified to allow for the greater participation of unions, in an attempt to a deeper understanding of the distinct sectors of the economy.

1950. In this year, the first measures were undertaken to move the Bank towards the assumption of the role of supplier of credit for the development of certain sectors of the economy. The Government decided to orient the course of medium and long terms credits towards productive activities. This developmental policy was reinforced during the 60´s by the creation of various financial funds associated with the Banco de la República, such as those of Agriculture and Cattle, Private Investment, Industry, Export Promotion, and Urban Development.

1951. Since the end of the 1940´s, a series of decisions had been adopted towards increasing the Bank´s role in the fields of regulation and execution of creditory and monetary policy. Such measures were given definition by Legislative Decree 756 of 1951 which attributed to the Bank the functions of drafting monetary, credit and foregin exchange policies with the purpose of creating propitious conditions for the ordered development of the national economy. To this end, some of the Bank´s existing powers were made more flexible while other new functions were granted to it, such as the fixing of credit allotments, the determination of the discount and interest rates, the fixing of the reserve requirements and the eligibility conditions of banking liabilities. By means of these attributions the Bank´s role as a central bank, with ample powers for the drafting and execution of national monetary and credit policy, was consolidated.

1960. In the 1960’s, the State found it advantageous to delegate the regulatory function of controlling the monetary base in a public corporation distinct from the Board of Directors of the Banco de la República.

1963. The Monetary Board was created, consisting of the following members: i) the Minister of Finance and Public Credit, presiding, ii) the Minister of Development, iii) the Minister of Agriculture, iv) the Head of the National Department of Economic Planning, and v) the Governor of the Banco de la República. In 1976, the Director of the Colombian Institute for Foreign Trade (INCOMEX) was added to the group. Free to share their viewpoints, but without the vote, the Economic Secretary of the Presidency and the Superintendent of Banks, as well as two advisors attended meetings.

With the creation of the Monetary Board, functions that had been in the exclusive domain of the Board of Directors of the Bank, an institution of private character, once again fell under State purvue. Thusly, the State was assigned the study and adoption of monetary, credit and exchange policies, leaving the Board of Directors of the Bank only the implementation of these policies. The Bank retained the monopoly of the issue of currency and other previously mentioned functions.

The decisions made by the Monetary Board were backed by the technical advice of two permanent advisors who were exclusively employed for research of the monetary, exchange and credit fields. This supposed the formulation of policy in said fields, leaving the Banco de la República the execution of these policies and the role of technical advisor to the government.

1967. Decree 444 put into effect a new exchange system which increased the Bank’s involvement in the control of the flow of foreign exchange, fundamentally in relation to the management of foreign currency budgets and the regulation of supply and demand for foreign exchange.

1973. Nationalization of the Banco de la República. The Government, having retired itself as a shareholder in the Banco de la República in 1951, once again assumed this role during this period. The Government acquired all the shares in the Bank except for one share for each one of the banks.

The reforms to the monetary system and the Issuing Bank, contained in Law 7 and Decree 2617, culminated in the effective nationalization of the Bank’s capital, given that the State became the owner of almost all of the Bank’s shares. Thus, the Bank became an economic, public law entity whose duties and functions can not be delegated. Nevertheless, representatives of different sectors such as Government, exporting, consumer, banking, production and distribution, continued participating in the Board of Directors.

Despite the nationalization of the Bank and the essentially public nature of its functions,

the Bank preserved its special autonomy vis-a-vis other institutions of the public administration, thus prolonging the tradition of autonomy granted since its creation.

At the end of the 1980’s, the need for a Board that was more independent of the Government began to be discussed as an outgrowth of the realization that the existing Monetary Board was not sufficiently independent given that a majority of its members were Ministers or officials of the executive branch who had responsibilities and interests in fields not related to the economy. As a result, several reform projects began to be proposed that finally crystallized in the convocation of the Constituent National Assembly in 1991. The Assembly included on its agenda the monetary system among other economic issues, which should be subject to constitutional economic regulation.

REFERENCES

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