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¿What is a market economy?
In a market economy, production takes place for the exchange of goods. Decisions about what and how to produce no longer depend on a single authority, but it is the market which allows us to recognize the signs of abundance or the scarcity of resources or products. Or with greater clarity, signs or signals of that which people wish to buy and what they can effectively buy with their available resources. An important feature of this new type of society is the liberty acquired by individuals to decide about their own participation in the productive process. Production, therefore, starts to develope for the exchange of goods through a procedure that eliminates obstacles to the freedom of action of each person.
¿What is production?
It is a process which seeks to obtain a specific product through the combination of certain ingredients or means of production, identified under three categories: land, work and capital. According to their nature these three resources, inputs or production factors are identified as follows:
- Natural resources economically exploitable or goods which may not be produced by humans but which are provided directly by the environment.
- Population or human labor.
- Resources produced by means of the use of technology.
The relation between the qualities and quantities of the factors used to obtain a product, and the quantity and quality of the product obtained depend on the skill used by the productor when combining the factors, which, in turn, is the result of his experiences and knowledge. It is that relation and combination which recieves the name of production function.
¿What is the minimum reserve requirement?
This is the minimum amount of money banks must reserve and which is made up with resources that they must not compromise in credit operations. This minimum reserve, which is established with the purpose of exercising monetary control, also becomes the backup of normal withdrawals from bank deposits that the public makes every day.
In the early days of the development of the banking system, this reserve was determined by the banks themselves as a precaution: it was their own decision. Today, it is the monetary authority who decides the proportion of the minimum reserve requirement, and it is the Central Bank which operates that decision when it defines the manner in which banks must mantain a minimum level of money as a reserve. Here we find one first constraint to that indefinite multiplication of money.
¿What are Repos operations?
By the Monetary Board’s Resolución 27 of 1988, the Banco de la República began the operation of buying back from banks titles which had been placed through open market operations. That is, participation titles and exchangeable titles against exchange certificates with a short term rebuying agreement and with the purpose of giving the system temporary liquidity in times of unusual low liquidity and a high demand of credit. Further on, negotations were extended to include promotion credit titles and agricultural promotion titles. These operations, which in part substituted ordinary credit quotas, are for a maximum period of seven days and at interest rates to be agreed freely according to those in the market.
¿What is the interbank system?
This is the system by which private banks make or ask for loans to other private banks. For practical efects, it is the "wholesale" money market.
Economic Information
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