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| The Bank |
| Functions |
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The currency-issuing attribute, characteristic of the Nation’s monetary sovereignty, is exclusive to the Banco de la República and can not be delegated. This attribute has materialised by means of various contracts, with the authorisation of Congress
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| Credit
Functions of the Banco de la República
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Law 31 establishes precise conditions: it categorically prohibits the Issuer (of 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 fulfilment of the Bank’s role as lender of last resort.
As regards the tendering of credit by the Banco de la República to the Government, although not prohibited by the new regime, very rigorous conditions exist for the concession of credit. In effect, this sort of credit should be limited to instances of dire necessity and should be conceded only with unanimous approval of the Board of Directors.
Nevertheless, it is important to point out that the Constitution left the possibility open for the Bank to continue acquiring Government bonds on the secondary market. In this way, it is not the Bank which directly finances the Government but rather individuals who have purchased these bonds. |
As with any central bank, the Banco de la República plays the role of banker of banks. On one hand, it is the depository of the money allocated in fulfilment of the bank reserve requirements, 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 mentioned previously, the Banco de la República acts as last resort lender to credit institutions in the event of a temporary lack of liquidity caused by the massive withdrawal of deposits.
However, in addition, the Banco de la República has made important contributions to the payment system and infrastructure of Colombia’s financial sector and to achieving the legal mandate of ensuring the normal functioning of internal and external payments. Of these, the most relevant to the objectives of contributing to the efficiency of productive apparatus, stability of the financial system and channelling of monetary policy indicators in money markets, is the money transfer service and the register of operations between financial intermediaries, of the values market amongst others, by electronic means in real time by means of the high denomination value payments system DA (“Deposit account system”).
Furthermore, the Bank manages the “interbank compensation chamber for cheques”, the interbank compensation chamber for low value electronic payments, the Central Values Deposit (DCV) de-materialised public debt deeds are kept and managed, and the electronic negotiation system (ENS) with public debt deeds.
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| Foreign
Exchange Functions |
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Law 31 also attributes the Bank with the task of formulating exchange policy within the framework of the criteria and objectives laid down by the Congress of the Republic aiming at the regulation of foreign trade and the international exchange rate regime.
The external situation of the country directly affects monetary conditions. Therefore, the Bank should participate in the drafting and definition of policy regarding foreign exchange rate and the flow of international capital. Thus, one of the Bank’s several functions is to organise and regulate the foreign exchange market and intervene in the market with the purpose of defending the exchange rate, in order to regulate the conditions of the country’s borrowing abroad.
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| Administration
of International Reserves |
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It is the Banco de la República’s responsibility 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 aim of facilitating national payments abroad.
The Bank, first of all, looks for security and stability in its investment and endeavours to keep liquid reserves in order to ensure timely payments to other countries.
International reserves are internationally accepted means of payment generated by, amongst others: i) The difference between income stemming from exports or sales abroad and expenditures relating to imports or purchases carried out 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 deposits remitted by Colombians residing abroad and those remitted to them. The purpose of international reserves is to enable the Government and private individuals and businesses to make payments abroad.
International reserves consist of freely convertible currencies, that is currencies that can legally be exchanged for other widely accepted currencies in the international market, either for gold or for Special Deposit Rights (SDR’s).
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| Government
Banker, Fiscal Agent and Trustee
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The Banco de la República fulfils 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 Government request and if such action is compatible with the Bank’s objectives.
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| Promoter
of Scientific, Social and Cultural Development
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The professional expertise and operating structure of the Bank has enabled it to support simultaneously the scientific, social and cultural development of the country through the creation of foundations designed to select, finance and otherwise stimulate research in the fields of sciences, technology, anthropology, archaeology, education, health and humanities. Moreover, the Bank has participated in efforts to rescue and preserve cultural heritage as well as in efforts to stimulate continued development through the creation and administration of libraries and specialised museums throughout the country. The Gold Museum (Museo de Oro) and the Luis Angel Arango Library, part of the Bank, are nationally and internationally recognised for the work they carry out.
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| The
Board of Directors’ Report to the Congress
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An innovation of considerable interest introduced by Law
31
was the obligation of the Board of Directors of the Bank to provide a Report to Congress, from its Chief Executive Officer. This Report explains the execution of the monetary, exchange and credit policies as well as containing general guidelines for deciding these policies, an evaluation of results achieved in the past period and a presentation of the objectives and goals proposed for the subsequent period and in the medium term. Additionally, the Report explains the administration policy and composition of the international reserves and the Bank’s current financial situation and prospects. Furthermore Congress can request additional reports from the Bank, and if during the course of the year a substantive change takes place with regard to the policies mentioned in the Report, the Board of Directors is required to present an additional report.
These public reports, presented by the Bank to legislative authorities, undoubtedly represent a democratic advance that fosters a more transparent handling of those areas of policy delegated 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, some were consolidated and others were eliminated and personnel was reduced in order to adapt the institution to the country’s new circumstances.
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“¿Qué es el Banco de la República?” (“What is the Banco de la República?”
Brochure in PDF format containing information about the Bank’s history, functions, attributions and cultural activities.
El
Banco de la República-Antecedentes, Evolución
y Esctructura. Banco de la República, Departamento Editorial, Bogotá, 1990.
(“The Banco de la República - Background, Evolution and Structure”). Banco de la República, Editorial Department, Bogota, 1990.
“Introducción al Análisis Económico. El caso colombiano”. 2a. ed. Revisada, Banco de la República, Ed. Siglo del Hombre Editores, Santafé de Bogotá, 1997.
(“Introduction to Economic Analysis. The Case of Colombia”.) Second Edition. Revised Banco de la República. Editor: Siglo del Hombre Editors, Santafé de Bogota, 1997.
“Historia del Banco de la República 60 años”. Fabio Gómez Arrubla, Talleres Gráficos, Banco de la República, Bogotá, 1983.
(“History of the Banco de la República: 60 years”.) Fabio Gómez Arrubla, Talleres Gráficos, Banco de la República, Bogota, 1983. |
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