The Second Kemmerer Commission. Law 82 of 1931 modified the composition of the Bank’s Board of Directors by means of the incorporation of representatives from the National Federation of Coffee Producers (Federación Nacional de Cafeteros) and from Chambers of Commerce as well as formalising the participation of the Minister of Finance. Foreign exchange control was implemented in order to regulate transactions with the rest of the world. In specific terms, the national currency exchange rate for foreign currencies was regulated and a decision was taken that any external payment must be authorised by the Issuing Bank. These resolutions contributed to the intensification of the Bank’s involvement as regulator of monetary operations, both for national currency and foreign currencies.
In September of 1931, England dismantled the gold standard linked with the Sterling pound which, at that time was the international currency of reference. In order to avoid depletion of its gold reserves, the Government temporarily suspended trade with gold and the conversion of currency into gold whilst establishing control of 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.
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The Grove Commission. In 1949, the Government invited a delegation from the New York Federal Reserve, headed by Daniel Grove, with the aim of carrying out 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 an incentive for economic development. As a result, the Bank’s Board of Directors was empowered, by means of the favourable 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 for lending, discount and rediscounting operations; and, iii) Set and alter the amount of the legally stipulated reserve requirement for the banking system, amongst other functions.
In addition, the life span of the Banco de la República was extended, along with its exclusive role as issuer of the national currency, for a further 20 years as from July 20, 1953. The composition of the Board of Directors was modified to allow for greater union participation, in an attempt to reach greater understanding of the distinct sectors of the economy.
In this year, the first measures were undertaken to move the Bank towards assuming the role of credit supplier for the development of certain sectors of the economy. The Government decided to direct the course of medium and long-term credit towards productive activities. This developmental policy was reinforced during the 1960´s by means of the creation of various financial funds associated with the Banco de la República, such as the funds for Agriculture and Cattle, Private Investment, Industry, Export Promotion, and Urban Development.
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Since the end of the 1940´s, a series of decisions had been adopted with the aim of increasing the Bank’s role in the fields of regulation and execution of creditor and monetary policy. Such measures were defined by Legislative Decree 756 of 1951, attributing the Bank with the functions of drafting monetary, credit and foreign exchange policies with the purpose of creating positive conditions for the development of the national economy. For this purpose, some of the Bank’s existing powers were made more flexible and additional functions were granted to the Bank, such as determining credit allocations, discount and interest rates, reserve requirements and the eligibility conditions of banking liabilities. These attributions consolidated the Bank’s role as a central bank, with ample powers for the drafting and execution of national monetary and credit policy.
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In the 1960’s, the State found it advantageous to delegate the regulatory function of controlling the monetary base to a public corporation other than the Board of Directors of the Banco de la República.
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 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 Bank’s Board of Directors, a private institution, once again fell under State purview. Thereby, the State was assigned the study and adoption of monetary, credit and exchange policies, leaving the Board of Directors of the Bank only the responsibility of implementing these policies. The Bank retained the monopoly of the currency issue 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 to carry out research on the monetary, exchange and credit fields. The Monetary Board assumed policy formulation foe these fields, thereby effectively transforming the Banco de la República into the executing agency and Government advisor for all economic matters.
Decree 444 put into effect a new exchange system that increased the Bank’s involvement in the control of the Foreign exchange flow fundamentally related to the management of foreign currency budgets and the regulation of supply and demand for foreign exchange.
Nationalisation of the Banco de la República. The Government, having withdrawn 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 leaving one share for each of the shareholding banks.
The reforms to the monetary system and the Issuing Bank, contained in Law 7 and Decree 2617, culminated in the effective nationalisation 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 with duties and functions that could not be delegated. Nevertheless, representatives of different sectors such as the Government, exports, consumers, banking, production and distribution continued participating in the Board of Directors.
Despite nationalisation of the Bank and the essentially public nature of its functions,
the Bank preserved its special autonomy vis-à-vis other institutions of the public administration, thus extending 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. This was due to the fact that the Monetary Board was not sufficiently independent as a majority of its members were Ministers or officials of the executive branch with responsibilities and interests in fields not related to the economy. As a result, several reform projects began to be proposed, finally crystallising in a summoning of the Constituent National Assembly in 1991,including in its agenda the monetary system amongst other economic issues, which should be subject to constitutional economic regulation.
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